The Systemic Problem Is Only Getting Worse

Felix Salmon notes that the continued forced consolidation plan to make Too Big To Fail banks even larger means that the next time our banking system breaks down, the fallout will be much, much worse:

It’s urgent that the government (probably through the FDIC) start imposing a surcharge on bank size. If this state of affairs is allowed to continue, there will be hundreds of unnecessary bank failures — maybe there already have been. And rather than the big banks getting smaller — which is what makes sense, from the point of view of the amount of systemic damage they can cause — they will continue to get bigger.

It wasn’t all that long ago that the 10% cap on national deposits was taken seriously: now it has been left far behind, even as the total deposit base has increased substantially. Wells Fargo, JP Morgan Chase, and Bank of America pose a real systemic threat to the US economy. They should be forced to start shrinking today.

But of course the opposite is happening. The Big 19 banks were given enough money to stay afloat. the rest of the industry will simply fall or be absorbed. Short-term, the plan worked. Long-term, it all but guarantees that we'll have another collapse down the road.