But leaving aside function-based restrictions, how would a regulator determine how big is too big -- literally, from the standpoint of creating systemic risk? Peter Boone and Simon Johnson, posting on The Baseline Scenario, provide a legislative update, an analogy, a guideline, and a recommendation:
The Kanjorski amendment recognizes that the systemic and societal danger posed by banks can be hard to recognize, and it proposes a number of potential objective criteria that could be used by the Financial Services Oversight Council (to be created by legislation in progress) to determine when banks need to be broken up, including the “scope, scale, exposure, leverage, interconnectedness of financial activities, as well as size of the financial company.”
The Kanjorski amendment does not impose a hard size cap on banks, but lawmakers in the House are discussing amendments that would do so.
There is, of course, a strong precedent for capping the size of an individual bank: The United States already has a long-standing rule that no bank can have more than 10 percent of total national retail deposits.