Congress urged to save banks ‘too big to fail’

Congress should identify banks or other financial institutions that have become so large their failure poses a systemic risk and should put them under federal supervision, according to the Independent Community Bankers of America.

"Excessive concentration has led to systemic risk and the banking crisis that we now face," C.R. Cloutier, president of MidSouth Bank in Louisiana, told the U.S. House of Representatives antitrust subcommittee on Tuesday.

Cloutier, who represented the Independent Community Bankers of America, said the presidents of smaller institutions thought it unfair that large banks were bailed out, while community banks were shuttered when they ran out of funds.

"Community banks are angry," he said.

He called for an interagency task force that would identify banks that were so embedded in the U.S. financial network that they had become too big to fail. These would be put under federal supervision, potentially the Federal Reserve.

The large banks themselves would be required to fund this oversight.

Albert Foer, head of the independent American Antitrust Institute, said antitrust challenges in the courts were unlikely to succeed and urged the creation of a new position in the Justice Department — deputy assistant attorney general for emergency restructuring — to argue for antitrust concerns while crucial decisions were being made.

"Congress should assure that a loud competition voice is heard," said Foer, who argued the government should stop mergers that could create "an unreasonable systemic risk."

Over the past year, the top tier of the U.S. banking industry has changed drastically as venerable names disappeared, either into bankruptcy or absorbed into larger organizations.

In March 2008, JPMorgan Chase & Co agreed to buy the investment bank Bear Stearns Cos. Following that, Lehman Brothers Holdings Inc sank into bankruptcy, JPMorgan has absorbed the failed Washington Mutual Inc, Bank of America Corp bought Countrywide Financial Corp and agreed to salvage Merrill Lynch & Co. Meanwhile, Wells Fargo & Co acquired Wachovia Corp.