The near-collapse of Wall Street and the passage of the now-infamous TARP bailout package in fall 2008 sparked public outrage and prompted calls for the federal government to reduce banks' influence on the U.S. economy.
Nearly five years later, the big banks are now bigger than ever.
Far from being nationalized, as once seemed possible in 2009, the big banks "have only become more influential and the economy more dependent on their performance," said Federal Deposit Insurance Corp. Vice Chairman Thomas Hoenig at a recent congressional hearing.
The eight largest U.S. banks hold assets totaling $10 trillion, or about two-thirds of the U.S. gross domestic product, Hoenig reported.
And two-thirds of the assets in the U.S. banking industry are held by fewer than a dozen of the largest banks, according to Richard Fisher, president of the Dallas Federal Reserve Bank.
Not only is the banking industry concentrated in a few megabanks, but those banks are widely regarded as too big for the government to allow them to fail. The editors of Bloomberg estimated that the implicit subsidy created by the government backstop is worth $83 billion annually for the 10 biggest U.S. banks.
The 2010 Dodd-Frank law, a sprawling reorganization of Wall Street regulation, was meant to end the phenomenon of too-big-to-fail banks by subjecting those with more than $50 billion in assets to additional regulations and granting regulators the power to take them over and wind them down in an emergency.
The widespread perception, however, is that Dodd-Frank did not solve the problem. "We need to stop too-big-to-fail," Federal Reserve Chairman Ben Bernanke, a defender of Dodd-Frank, acknowledged at a Senate hearing earlier this year.
The last major push to rein in big banks was an amendment to Dodd-Frank by Democratic senators Sherrod Brown of Ohio and Ted Kaufman of Delaware that would have limited banks' size by preventing any institution from holding more than 10 percent of the nation's total deposits. The amendment never really had a chance, however, and ultimately got only 33 votes.
Now critics of big banks have a more modest goal: forcing them to hold more cash on hand in case of emergencies.
Brown teamed up with David Vitter of Louisiana, a Republican, to introduce a bill that would set the leverage ratio
for banks identified as systemically important, such as Goldman Sachs and JPMorgan Chase, at 15 percent. The bill won fans among bank reformers, including MIT economist Simon Johnson, who wrote in a column for Bloomberg View that the legislation "changes everything."
Nevertheless, Brown-Vitter has basically stalled in Congress, failing to gain many co-sponsors or wider traction.
It's possible that regulators will do administratively what Brown and Vitter tried to do legislatively. Regulators at the FDIC reportedly are pushing to double the current leverage ratio to 6 percent, a level higher than that at most of the biggest banks. Daniel Tarullo, the Fed governor overseeing regulatory efforts, indicated last week that the Fed would propose a higher ratio as well.
Opponents of too-big-to-fail attribute the movement on the issue to the push behind the Brown-Vitter bill. Nevertheless, as Johnson told the Washington Examiner,
raising the ratio would be "a step in the right direction, but only a small step." Capital requirements could easily be lowered by future regulators, and 6 percent is significantly lower than the 10 percent favored by the FDIC's Hoenig or the 15 percent included in Brown-Vitter.
It's also a far cry from breaking up the banks.