Break the big banks up

The Seattle Times: America now has a handful of trillion-dollar banks that have been declared, in effect, too big to fail. And yet Americans have learned that any of them — or all of them — may fail. To reduce the risk to the federal taxpayer and to American investors and workers, the biggest banks may need to be broken up.

Many voices are saying banks need to be regulated more. Done carefully, this is a good idea. But banks are already regulated, and the old regulation did not do the job. The innovators of finance went around it. Nor can innovation be outlawed. There must always be risk, and the bigger the player, the bigger the risk.

And that is why it may be wise to break up the biggest financial companies. We think of the trillion-dollar-asset banks — Citigroup, J.P. Morgan Chase, Bank of America and Wells Fargo — and insurance giants like AIG.

Antitrust laws

The federal government has broken up companies before, through the antitrust laws. But the big breakups can be counted on one hand: Northern Securities, Standard Oil, American Tobacco, Paramount Studios and American Telephone & Telegraph.

The first three were a century ago. Paramount — the case that separated the motion picture studios from the theaters — was 60 years ago. The Bell System breakup was 25 years ago. None was a financial company — and none was for reasons of risk to the American economy as a whole.

Former Federal Trade Commission investigator Jack Kirkwood, now associate professor of law at Seattle University, says antitrust law has come to focus on economic harm to the consumer. “Too-big-to-fail relates to a different issue,” he says.