Chapter 5: Executive Summary – Enhanced Regulation of Large, Complex Financial Institutions

From the book “Restoring Financial Stability: How to Repair a Failed System”. Section II: Financial Institutions


Deregulation in the 1990s gave rise to a new generation of what the Federal Reserve has called “large complex financial institutions” (LCFIs).  These are huge private sector enterprises engaged in a broad array of financial services including commercial banking, investment banking, asset management and insurance.  Banking regulators now generally regard them as too-big-to-fail (TBTF).

The expanding LCFI share of the US financial services market suggests that the beneficial effects of economies of scale and scope and related operating-efficiencies outweigh the costs of complexity, increased risk-exposure and conflicts of interest. But their record of massive credit write-offs, regulatory infractions, repeated legal settlements, and poor long-term share price performance suggest the opposite conclusion.