Bills for big firms

Barney Frank

When Lehman Brothers collapsed last September, its impact permeated far beyond the boundaries of the financial services sector. Lehman wasn't alone, however, and - ever since the crisis hit - the broader economy has been increasingly unstable.

Rocked by both the greed of Wall Street bankers, by rising unemployment figures and by other failing financial companies, the wider economy has been battered in recent months. Now, Democrats are advancing proposals on Congress designed to limit the size and complexity of financial companies, thereby preventing any collapse from damaging the wider economy.

Tougher rules

The proposals are a good sign for consumers, who will likely view the move by the Democrats as evidence that they are responding to calls for tougher rules for financial institutions.

Under the new rules, the government would be able to "break up" healthy financial companies, barring commercial banking firms and investment banking firms from merging. The ensuing debate on whether the proposed rules will be passed through Congress is now being watched closely.

Currently, the provisions already have the support of, among others, House Financial Services Committee Chairman Barney Frank, though it remains unclear whether the rules will be passed into law.

The idea of splitting up big banking giants certainly isn't new. Until 1999, rigid demarcations that prevented commercial and investments firms form merging has already existed, meaning that a passing of these new provisions would technically be a reassertion of old laws.

What's more, the move has already been seen in UK, where last week taxpayer-supported firms RBS and Lloyds Banking Group agreed to sell off hundreds of branches in an effort to encourage competition and raise funds to payback the taxpayer.

Growth

Officials are pushing to give the US the power to seize and dissolve large, collapsing financial companies, seeking to avoid the disastrous consequences seen last year. Now, however, policymakers are taking the debate a step further, by asking whether financial companies should be allowed to grow so large in the first place.

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