If the government determines that a financial institution is Too Big To Fail (TBTF), they should require the institution to break up into smaller pieces. This determination should depend on analysis of failure scenarios under stress conditions given existing resolution authority.
Several banks are likely TBTF right now, and they should be broken up along Glass-Steagall lines with retail/commercial banking split from investment banking. Ordinary deposits should be used to make loans according to years of safe practice, separate from risky and innovative adventures in investment banking.
What do you think?
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