The New Consensus

Simon Johnson confronts banks:

There is only one point on which I would insist. The banking lobby has become too powerful, in large part because big banks have balance sheets that are too big relative to the size of the economy.  If a bank has total assets of over 10% of GDP, it is obviously too big to fail. Of course, the smart people who run these banks know this and act - politically and economically - accordingly.

We need a strong system of financial intermediation, and this must feature people willing to take risks with their own capital.  In that context, there may be efficiency arguments in favor of relatively large deposit-taking/lending banks (although I’m far from convinced), but it is the political economy considerations that are overwhelming.  When all is said and done, if we still have large banks with great political power, we will eventually find ourselves in even bigger trouble.