One Way or Another, ‘Too Big to Fail’ to Be Fixed

By Paul Davis

 

“Too big to fail” is destined for a fix as policymakers look for ways to prevent financial services companies from becoming excessively large or complex. The options for reining in scale remain varied yet vague, ranging from straight asset caps to systems that could require more capital or bigger fees as banks expand. Those who back restricting growth point to Citigroup Inc. as a textbook example of a complex and sprawling banking company that became too big to manage. In January the $2.02 trillion-asset company split into two units: one that includes core businesses and another with about $850 billion of assets that Citi plans to sell or wind down. Regulators may encourage other companies to mimic Citi by identifying and selling untraditional business lines. Karen Shaw Petrou, the managing director of Federal Financial Analytics, said that would not only shrink the “too big to fail” companies, but it would also spread risk among a larger group of participants. “I think there will be a rationalization, she said.”I think we will see a model where the institutions redefine their core competencies.”

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