Everyone seems to realize at last that banks that are too big to fail are also too big to manage--and too big to exist. Even the Feds understand this now, and are grasping for a solution.
To me, the answer is simple: impose higher capital requirements on banks with more than $100 billion in assets, to reflect the heightened risk such mega-institutions pose to the system. That way, the market, not regulators, could decide if the increased size is worth the attendant extra risk and capital.
I can't imagine a simpler, more logical solution. Yet now the Treasury is out with a different proposal: it proposes that if any of big bank or broker fails, banks with assets above $10 billion be assessed a resolution fee, over and above their regular FDIC premiums.
Now there's a great idea. Assess every regional bank in the country to pay for the reckless risk-taking of Citigroup (NYSE:C), Bank of America (NYSE:BAC), Goldman Sachs (NYSE:GS), and the rest. Penalize the banks that provide credit to Main Street America to offset the New York casino culture.
Citi has effectively failed. So has BofA. Goldman would be out of business, as well, if it weren't for the emergency relief the government provided it. It's not the taxpayer's job (or the job of the U.S. banking system, for that matter) to reward the failures of the mega-institutions, or enable their irresponsible risk culture.
If the government can't effectively control these banks (and recent history shows that it can't) let the market do so by dramatically raising their capital requirements.