How Too Big To Fail Got Even Bigger

It's hardly news that the banks we've considered "Too Big to Fail" have grown "Way Too Big to Fail." But how much have they grown and how big are they, exactly? David Cho of the Washington post has your answers. The piece is here. Awesome graphs are here:


As I've written before, the government dealt with the darkest days of the financial crisis with (at least) two overarching goals. First, they wanted to save the banking system. Second, they wanted to reform some of its ugliest warts, including the existence of banks so big that their collapse could pull the rest of the financial system down with them. When Bear Stearns teetered, the Feds tapped JPMorganChase to cushion the blow. When Merrill Lynch went spiraling down, they encouraged Bank of America to eat its bad assets. Same story for Wachovia, Countrywide and WaMu. But solving the first bank-failing problem has arguably worsened the second "Too Big to Fail" problem.

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The government says it has a plan to deal with this, which includes: 1) To promote the Federal Reserve to be a "free safety" that roams and regulates the financial sector, especially monitoring the larger institutions and 2) To force big behemoths like JP and BofA to have more conservative asset ratios so that a widespread shock to the system like the housing crisis doesn't create a capital and liquidity crisis like we just experienced. I don't know if that's a really good, yet simple idea, or if by pawning off more responsibilities to the Federal Reserve, we're merely taking the financial system's most significant challenge out of the political system as a matter of convenience. To me it also raises another point of irony: In some ways, low interest rates offered by the Federal Reserve helped to contribute to the easy credit days in the mid-2000s that facilitated the housing boom, whose pop triggered the financial meltdown. Ultimately, it goes to show how difficult it is to reform a system while you're trying to use its few working parts to save it.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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