ABA’s Keating calls for break-up of “too big to fail” institutions, not large banks

Frank Keating

In a Wednesday editorial, American Bankers Association President and CEO Frank Keating called for the break-up of “too big to fail” institutions rather than the dissolution of big banks.

“Dismantling large banks would be counterproductive to the nation’s economy,” Keating wrote in regard to the Dallas Federal Reserve Bank’s call to dissolve large banks, reports. “To truly end too big to fail, it is better to focus less on the word ‘big’ and more on the word ‘fail.”

Keating said that, because the U.S. can only lay claim to five of the top 50 banks in the world, breaking up large banks would only reduce the institutions’ ability to serve the American economy.

Large foreign banks, Keating said, would swoop in to handle the banking needs of American corporations. This, Keating argues, is counterproductive to the U.S. financial system.

“Moreover, dismantling an institution regardless of its health or performance is like amputating a healthy limb in anticipation of an injury. It is indiscriminately punishing and potentially self-defeating,” Keating said, according to

In regard to the Dodd-Frank Act of 2010, legislation designed to reform the U.S. financial system, Keating said that many critics of the act are critics solely because government policies do not enforce the idea that investors and creditors must take losses in the event of a financial collapse.

“While the law puts in place important new controls and grants new authorities—from living wills and annual stress tests to higher capital standards and creation of a council to oversee system risk—it also includes provisions that would give regulators an out to protect at least some creditors,” Keating said, reports. “Absent more hard-nosed, if-you-fail-you-lose policies, the market will assume the best in a worst-case scenario.”

Keating said that a recent study by the Dallas Federal Reserve notes that taxpayer bailouts “interfere with ‘creative destruction,’” an economic take on the theory of natural selection in which old institutions are destroyed and replaced by new institutions.

“But, a forced downsizing is no more organic and could destroy something that is working well, without any assurance that the new will come along or be better,” Keating said, according to

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