US Top Banks Warn Congress on 'Break-Up' Risks - Financials * US * News * Story

Runway Angels
The superbowl of fashion shows, models walk down the runway at the 2009 Victoria's Secret Fashion Show.
The Richest Members of the US Congress
Recently, the Center for Responsive Politics found that there are 237 millionaires in the US Congress.
10 Tips to Get Out of Debt
Renowned financial author Gail Vaz-Oxlade takes a tough-love approach to helping couples in a financial crisis to face reality.

FEATURED QUIZZES

How Much Do You Know About Green?
Green has become part of our everyday lives. Green is everywhere-- energy, clothing, food, housing, transportation. It's a big business and a global business.
The Billionaire BFF's
Philanthropists. Bridge partners. Hockey players. Which responses are based on facts from Buffett's and Gates' real lives?
The Many Myths of Coca-Cola
Can you tell which statements are true, and which ones are just rumors?

SPECIAL REPORTS

Winterizing Your Portfolio
If 2009 was the winter of our discontent, will 2010 be a winter wonderland for investors? A lot depends on the recovery—or lack thereof.
Investor's Guide to Real Estate
Some even say the long-awaited recovery is here. Regardless, buyers and sellers alike can profit from our guide.
Alternative Investing
Stocks and bonds? Sure. But it's a big world out there for investors.

CNBC ON DIGG

US Top Banks Warn Congress on 'Break-Up' Risks

Published: Tuesday, 17 Nov 2009 | 3:14 AM ET

Text Size

By: Reuters

Some of the world's largest financial firms on Monday urged a top U.S. lawmaker not to pursue big bank break-up legislation, an idea attracting interest in Congress and causing alarm on Wall Street.

world's Best Banks

The Financial Services Forum, a lobbying group for CEOs of firms including Goldman Sachs [GS Loading... () ] and JPMorgan Chase [JPM Loading... () ], said empowering regulators to break up "too-big-to-fail" banks "could lead to long-term damage to the U.S. economy."

The forum made its comments in a letter to U.S. House of Representatives Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, that was obtained by Reuters a day before Frank's panel resumes work on financial reform legislation.

Seeking to shift Capitol Hill's debate on what to do about firms that may endanger global economic stability, the forum said size alone does not make firms risky. Rather, it said, over-concentration in specific markets raises levels of risk.

In addition, the forum said, large firms can make bigger loans, offer customers more products and services and achieve greater geographic reach.

"To be sure, 'too big to fail' must be eliminated. But the problem is not that some institutions are too large. It's that there is currently no legal authority to unwind, in an orderly way, a failing financial conglomerate," it said.

Arguments about concentration risk, global competitiveness and firms' sheer size will dominate debate in the days ahead as Congress tries to craft what is shaping up to be the most contentious piece of the government's regulatory response to last year's financial crisis, the worst in generations.

RELATED LINKS

The Obama administration and Congressional Democrats want a new way to handle failing firms. The goal is to prevent another debacle like last year's, when Lehman Brothers collapsed, triggering a credit crisis, and taxpayers bailed out AIG [AIG Loading... () ], Citigroup [C Loading... () ] and Bank of America [BAC Loading... () ], among others.

Frank's committee will debate a bill beginning on Tuesday that would give the government far-reaching new powers to regulate and restructure large financial firms whose failure could undermine the broader financial system and the economy.

The Senate Banking Committee has tentatively scheduled a working session for Thursday on similar legislation, introduced last week by committee Chairman Christopher Dodd.

Both committees' debates are expected to continue for some time. No final House floor vote is likely before December, and analysts don't expect final Senate action until early 2010.

At the Wall Street Journal CEO Council conference, White House Chief of Staff Rahm Emanuel said he is planning to meet members of Frank's committee late Monday to discuss regulatory reform.

He said that he expects Frank's committee to vote on the bill this week and the full House of Representatives could start debate in the next two weeks.

As soon as this week, Democratic Representative Paul Kanjorski, chairman of the House capital markets subcommittee, is expected to offer an amendment that would try to prevent firms from getting "too big to fail" in the first place.

Senator Bernie Sanders, a Vermont independent, has introduced a similar bill to give government authorities the power to identify and break up firms that are too big to fail.

Small- and mid-sized banks, which have demonstrated considerable political clout through the financial reform debate, will support such legislation, which would cut their largest rivals down to size, lobbyists said.

In the European Union, regulators are considering measures to force banks across Europe to sell assets and sometimes even break up to compensate for massive state aid they have received.

"Although we think that breaking up the larger banks would be positive for the U.S. economy as it would enhance competition ... we acknowledge that any action on breaking up large banks is likely a couple years out," said Paul Miller, policy analyst at investment firm FBR Capital Markets.

More From CNBC.com