Is there a big gain to keeping banks small?

I agree with Kevin Drum:

But to me it still has the flavor of a solution that's clear,
simple, and wrong.  After all, Bear Stearns was a quarter the size of
Citigroup, and it was considered too big to fail.  So just what would
the limit be on bank size?  $500 billion in assets?  $200 billion? Can
a country the size of the United States even have nationwide banks with
limits like that?  And what happens the next time around, when all
these smallish banks overleverage themselves and collapse en masse? 
Are we any better off than we are with a few big banks failing?

The whole post is worth reading, but I have a feeling that nostalgia
for the 70s just isn't going to work.  Big companies are here to stay,
and I suspect that any regulation stringent enough to keep banks small
enough to fail won't be sustainable.  And unless we reign in
overleverage and massive waves of credit expansion, it won't do any
good anyway.  The same thing will happen again, just in a slightly
different way.

Here is my earlier post on itty bitty banks.


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