'Too Big to Fail' Banks Are Only Getting Bigger

Gangbuster results have Treasury fearing moral hazard
By Jason Farago,  Newser Staff
Posted Aug 28, 2009 6:46 AM CDT
A customer uses a Bank of America ATM in Charlotte, N.C., Friday, July 17, 2009.   (AP Photo/Chuck Burton)
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(Newser) – Officials plowed hundreds of billions of taxpayers' dollars into financial institutions deemed "too big to fail," but a year later the once-stricken banks are bigger than ever. Thanks to Treasury and Fed-brokered mergers, plus a playing field cleared of the weaker performers, America's financial behemoths are coming out of the crisis in even stronger positions. JPMorgan Chase, BofA, Wells Fargo and Citigroup now control half of America's mortgages and two thirds of its credit cards, reports the Washington Post.

Washington waived competition rules in order to make the banks' shotgun weddings work, and already consumers are seeing the impact—according to the Dallas Fed, the top four banks hiked their fees by 8% while struggling smaller banks dropped theirs by 12%. But that effect is minor compared to the bailouts' moral hazard: Big banks, implicitly assured of a government rescue, may return to the same risky practices as before. Size is at the top of the list of  FDIC chief Sheila Bair's concerns, she says: "It fed the crisis, and it has gotten worse because of the crisis."