Too Big to Fail Too Hard to Fix Amid Calls to Curb Banks

By Craig Torres and Cheyenne Hopkins

Top U.S. bank regulators and lawmakers are pushing for action to limit the risk that the government again winds up financing the rescue of one or more of the nation’s biggest financial institutions. Officials leading the debate, including Federal Reserve Governor Daniel Tarullo, Dallas Fed President Richard Fisher and Senator Sherrod Brown, share the view that the 2010 Dodd-Frank Act failed to curb the growth of large banks after promising in its preamble to “end too big to fail.” Strategies under consideration range from legislation that would cap the size of big banks or make them raise more capital to regulatory actions to discourage mergers or require that financial firms hold specified levels of long-term debt to convert into equity in a failure. Karen Shaw Petrou, who keeps track of legislation and regulation for the world’s largest banks as a managing partner at Federal Financial Analytics in Washington, said she can’t rule out the possibility of legislation. Beating on the big banks is one of the few areas where Republican and Democratic populists unite, she said. “This is going to be one of those instances where the left wing, of which there are a lot among House Democrats, and the right-wing Republicans join together,” Petrou said. “I don’t think potential legislation can be discounted.”