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How to deal with 'Too Big to Fail'? Size limits or Bailouts?

During the recent recession, one of the most debated issues was the government bailout of some of the nation's biggest banks and other financial institutions. The argument was that banks had gotten too big to fail, but not all banks were lucky enough to have the U.S. government step in and save them.

As the nation continues to recover, we are once again seeing banks grow in size, and the discussion of how to deal with these large institutions lingers.

On the side of limiting size is Dallas Federal Reserve Bank President Richard Fischer. Mr. Fischer believes that forcing some of the big banks to break up is the best way to avoid the future need for government bailouts, and he is taking his argument to friendly crowd at the year's Conservative Political Action Conference.

Republicans are typically opposed to any sort of government bailout, so his arguments are likely to fall on receptive ears. Mr. Fischer has been very vocal on the issue of “too big to fail,” earlier this year, saying that if big banks were forced to break into much smaller pieces, it would be easier to allow one of those parts to be disposed of in bankruptcy running the risk of collapsing the entire financial system.

Mr. Fischer is not alone in his views. Several big banks have been dealing with shareholder pleas for more influence over their size. JP Morgan (JPM), Citigroup (C), Bank of America (BAC), and Morgan Stanley (MS) have all be facing the possibility of shareholder votes on whether or not they should be broken up.

Regulators came down on the side of the banks Wednesday. The SEC posted letters it sent to each bank agree with bank lawyers that they did not have bring shareholder proposals about breaking up the banks to a vote.

Michael Fowlkes

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.