Does too big to fail, too big to punish, and too big to manage mean you are too big?

(Cross-post from my other blog, Attestation Update.)

George F. Will suggests the answer to the question is “yes”: When banks get too big to fail, they are too dangerous to leave intact

One of the U.S. senators on the left end of the political spectrum thinks it is time to break up the too-big-to-fail banks.

Look at the concentration of assets in the TBTF range and the long history of TBTF:

In a sense, TBTF began under Ronald Reagan with the 1984 rescue of Continental Illinois, then the seventh-largest bank. In 2011, the four biggest U.S. banks (JPMorgan Chase, Bank of America, Citigroup and Wells Fargo) had 40 percent of all federally insured deposits. Today, the 5,500 community banks have 12 percent of the banking industry’s assets. The 12 banks with $250 billion to $2.3 trillion in assets total 69 percent. The 20 largest banks’ assets total 84.5 percent of the nation’s GDP.

You might think that people on the right side of the political spectrum would have a problem with the above mentioned senator’s suggestion to break up TBTF banks. That’s not quite the case because it is government favors that helped create those banks. That in turn increases the risks in the economy.

As we have seen in the Libor and money laundering issues, those banks are too big to punish because that would create systemic risk by itself.

They are also too big to manage, as is also visible in the Libor and laundering mess, as well as pointed out by Mr. Will, and described in another article he mentions.

So perhaps, just perhaps, TBTF, TBTP, and TBTM means you are just TB.

Mr. Will’s conclusion on the result of government policy combined with crony capitalism:

By breaking up the biggest banks, conservatives will not be putting asunder what the free market has joined together. Government nurtured these behemoths by weaving an improvident safety net, and by practicing crony capitalism. Dismantling them would be a blow against government that has become too big not to fail.

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