Alison Vekshin of Bloomberg reports that the House Committee on Financial Services approved an amendment today offered by Rep. Paul Kanjorski that would give U.S. regulators the power to dismantle financial institutions whose size is deemed to be threatening to the stability of the U.S. financial system.

Preemptively breaking up well-managed, amply-capitalized financial institutions is misguided for a number of reasons.  Most fundamentally, the problem of "too-big-to-fail" is not that institutions are too big; it is that there is currently no authority to wind down a financial conglomerate in an orderly way. More effective supervision, coupled with the authority to seize and wind down large firms, is the appropriate remedy to "too-big-to-fail."

Research conducted by Columbia University finance professor Charles Calomiris shows that the gains produced by efficiencies of scale and scope accrue to customers in the form of better and cheaper financial services.

Large, globally active financial institutions have expanded the supply of credit and other financial services to emerging market economies, contributing importantly to the expansion of trade flows, opening foreign markets to U.S. goods and services and, therefore, contributing importantly to economic growth and job creation.

Also, rather than being a source of risk, size can be a risk mitigant.  Large institutions are far more diversified in their business mix than smaller institutions, which tend to be engaged in fewer businesses and regions, thus exposing them to much greater concentration risk.  In this regard, larger institutions can be more stable than smaller institutions.

To be a global financial leader, which is definitely in the interest of American businesses, workers, savers, and investors, the United States needs institutions of all sizes, business models, and areas of expertise.