It is common knowledge that the banking industry has become increasingly consolidated over the past 25 years. In 1990, prior to a number of banking law changes, the nation housed around 12,500 charters. Today, there are roughly 6,000 charters, with consolidated assets of the top 10 U.S. banking firms representing approximately 64 percent of U.S. banking assets. Without question, operations of these large firms magnified the financial crisis, emphasizing their systemic importance. The resulting landmark legislation—the Dodd-Frank Act—is intended to reduce systemic risk and, ultimately, end “too big to fail.”
Many people want to put size limits on “too big to fail” banks, given their risks to the broader economy. Such limits, however, could raise the cost of providing banking services by preventing banks from exploiting economies of scale.
Five years after the financial crisis, regulators and lawmakers are still attempting to deal with the big banks—those considered “too big to fail.” Recent “misbehaviors” associated with big banks have invigorated the debate: Are these organizations too complex to effectively manage?