Banks considered too big to fail are even bigger
And the assets of JPMorgan Chase & Co., the nation's biggest bank, have ballooned to $2.4 trillion from $1.8 trillion.
Ending the problem of so-called too-big-to-fail firms was a rallying cry for politicians and regulators after the unprecedented bailouts in fall 2008. The issue was the major impetus for enacting the sweeping Dodd-Frank regulatory overhaul two years later.
President Barack Obama and key financial regulators said the law's reforms, many still not finished, will prevent another financial industry rescue by reducing the chances that a mega-bank would collapse and by giving the government new powers to handle one if it did.
Yet five years after the crisis, several of the nation's largest banks are even larger. Total assets at the nation's 10 biggest banking companies shot up 28 percent to $11.3 trillion, as of the end of June, federal regulators said.
There is rare agreement among many Democrats and Republicans in Washington that those banks still are too big to fail, leaving the nation's economy even more at risk.
"These banks are too big to manage and they're too big to regulate," said Sen. Sherrod Brown, D-Ohio. "Too-big-to-fail hasn't been fixed."
Agreement on identifying the problem, however, doesn't mean both sides of the aisle can agree on a solution. Arguments still rage in Washington on an issue that now is known simply as TBTF.
Like many Democrats, Brown believes that the new rules, including federal authority to seize and dismantle firms if their failure threatened to trigger a crisis, don't go far enough.
They want new laws that could force mega-banks to downsize. If they're not too big, the argument goes, then they're not too big to fail.
Most Republicans agree that the problem of too-big-to-fail institutions has become worse. But they don't blame the banks and don't want to force them to shrink.
The culprit is the financial reform law itself, one of Obama's signature first-term accomplishments.
"Rather than ending too-big-to-fail, Dodd-Frank codified it and wrote it into law," said Rep. Patrick McHenry, R-N.C.
The government's new power to seize large financial firms teetering near collapse could result in them being rescued instead of shut down, in effect enshrining bailouts as an option for federal officials, McHenry said.
Wall Street executives and investors know the public safety net is still there, and that has fueled the growth of those banks since the crisis, McHenry said.
The solution, he and many House Republicans said, is to get rid of that authority and make clear that any financial firm - no matter its size - would be forced into bankruptcy if in danger of failing.
If all banks can fail, then none would be too big to fail, Republicans said.
"The public yearns for an easy solution and a villain," said Douglas Elliott, a former investment banker who is now a fellow at the Brookings Institution think tank. "People don't like the big banks, so break them up."
The solutions aren't so simple, Elliott and other experts said.
The Dodd-Frank law tried to deal with the threat of a mega-bank meltdown by limiting the risks financial firms could take to reduce the chances they would get into trouble.
The steps included stricter oversight for firms deemed "systemically important" and requirements that the companies hold more capital in reserve to cover potential losses.
Other provisions sought to shed light on the dark markets trading in complex financial investments called derivatives and to limit high-stakes trading by federally insured banks.
But intensive financial industry lobbying has slowed federal officials from writing those rules. And the detailed regulations fleshing out the law's broad guidance often have fallen short of what experts believe is necessary.
"As badly as people were hurt - so many families are just getting on their feet - to leave this financial system as unstable as it is, I really don't understand it," said Sheila Bair, the former chairwoman of the Federal Deposit Insurance Corp.
Although she's pleased regulators recently proposed tougher limits on the amount of debt large banks could take on to boost their investment returns, Bair said the limits aren't tough enough. And those rules, like many others, still haven't been adopted.
Treasury Secretary Jacob J. Lew has acknowledged the slow pace and is pushing for the major remaining elements of the law to be in place by the end of the year. At that point, he and other supporters of Dodd-Frank said, too-big-to-fail will be ended.
Former Rep. Barney Frank, D-Mass., one of the law's namesakes, said that if a teetering financial firm is seized, the executives must be fired and the shareholders will be wiped out.
Those factors alone, he said, solve the two main problems of too-big-to-fail: First, that big bank executives take excessive risks because they believe the government would save their jobs. And second, that investors pump money into those banks because they think the government would bail them out.
It's possible Congress could change the law when faced with a major crisis, as it did when it created the $700 billion Troubled Asset Relief Program in 2008, Frank said.
But given the huge unpopularity of the bailouts, he saw that as unlikely - even though the TARP bank bailouts are projected to turn a $24 billion profit for taxpayers.
"The notion that in the foreseeable future, the United States Congress would amend the law so that federal funds would be used to keep a big bank alive is the stupidest notion I've heard in many years," Frank said.
Moody's Investors Service said last month that, as more Dodd-Frank regulations were put in place, it would review its credit ratings for the six largest U.S. banks because it was considering reducing its assumptions about government support for them in a crisis.
But to some big bank critics, the Moody's announcement only confirmed that the largest financial firms have an advantage over smaller ones in raising money because they're still believed to be too big to fail.
Rob Nichols, president of the Financial Services Forum, a trade group of the chief executives of the 19 largest U.S. financial institutions, said there is evidence that the funding advantage for large banks is disappearing, "suggesting investors are very much of the view that too-big-to-fail is going away."
Some big banks are significantly larger now because they stepped up during the crisis to absorb failing competitors, such as Countrywide Financial Corp. and Washington Mutual Bank, Nichols said.
He also noted that only four of the world's 25 largest banks by total assets are based in the U.S., with JPMorgan the highest at eighth.
"Just suggesting that size is the sole measure of safety does not make sense," Nichols said.
Still, lawmakers are pushing ahead with efforts to reduce the risks of a large bank failure.
Brown has teamed with Sen. David Vitter, R-La., on legislation that would force the largest banks to hold more than twice the amount of capital reserves that regulators have proposed.
Sens. Elizabeth Warren, D-Mass., and John McCain, R-Ariz., have joined on a bill that would re-establish the Glass-Steagall prohibition on deposit-taking institutions from also having investment banking businesses.
And House Republicans plan to introduce their own solutions.
"Dodd-Frank has created strange political bedfellows who agree that too-big-to-fail has not ended," McHenry said.
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