Why Opponents Do Not Support Limiting the Size of Banks.

For the past week or so we've been discussing the proposal for limiting the size of financial institutions.  There's an ongoing debate about the maximum size to which a bank should be allowed to grow and how to go about breaking up banks that become too large. Earlier this week we covered some of the arguments given by the supporters of limiting the size of banks. It's only fair that we review some of the arguments for those who are against it.

• It would not solve the problem of systemic risk and systemically important institutions in a comprehensive manner.
• Even banks not considered "too big" can pose a big risk to our markets because of their interconnectivity. Bank size alone is not the most important threat.
• Too big to fail is not only about size, but more about risk and interconnectedness. Breaking up the megabanks is not an effective way to mitigate risk.
• A broken up banking system cannot always provide the level of service, extensiveness of products and speed of execution that consumers often need.
• Strategically calculated resolution that helps prevent one company's failure from spreading to another and to the broader economy is what's needed. 
• Regulations preventing banks from becoming too big to fail is a band-aid solution that would only further harm the economy.

Though there is much debate regarding limiting the size of banks and its effectiveness to prevent future failures and taxpayer-funded bailouts, one thing is for sure, the financial regulatory system must be modernized.  But what's at risk is too great and the costs to far-reaching to proceed hastily.