Too big to fail

United States Capitol

When the economic crisis hit last September, one of the biggest arguments against Wall Street was that banks were too big to fail. Now though a key US committee have voted to give the government the power to take apart banks that critics say fall into the "too big" category.

According to reports, the bill would give a proposed new council of regulators the right to split up firms whose scale could hurt the economy, regardless of their current state of health on their balance sheets. Perhaps, unsurprisingly Wall Street are heavily opposed to such measures.

Overhaul

The vote by the US House of Representatives is a huge step by the government to overhaul the financial services institutions and right the industry's wrongs. However, it looks like the vote will have to go through a series of additional steps before it becomes law.

The push for the bill comes from the belief that no firm should be considered to be too big to fail, but many Republicans are already showing their disinterest in the proposed bill, arguing that such a committee would give too much power to US regulators, forcing financial firms to scale back their size and therefore put them at a disadvantage.

Democrat Paul Kanjorski, who sponsored the proposal however, warned that "financial firms that want to play in a casino need to have their own resources to cover their bets." He added that we, "cannot assume that tax dollars are available in reserve if their bets fail."

It is believed that the legislation would establish a Financial Services Oversight Council, which the House of Representatives say would have to consider a bank's "scope, scale, exposure, leverage, interconnectedness of financial activities" before having to "consult the president before taking extraordinary actions."


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