What does need to happen is that strong units of big banks remain, and the useless ones get flushed out. The big boys are still pillars of the industry, even if they’ve been discredited for the time being. They evolve, the system stays afloat.

Consolidation is a bad idea, I agree. We might as well rename the whole shebang Bank of the United States and let it be obvious who’s running it. At the same time–reverting to large numbers of regional/local banks sounds progressive but improbable. What role do the large banks play in supporting smaller banks? What does the model look like? Would removing the big boys create systemic instabilities? Moreover, would politicians and execs be forward-thinking enough to surrender the old model for something that would diffuse their own influence? Finally, would regional banks have enough mettle to take up the roles that big banks used to play?

Here and elsewhere I’ve heard plenty of folks talking about getting rid of weak banks and supporting stronger ones as a guiding philosophy in revamping the banking industry. However, aren’t mega-huge, “too big to fail” banks mostly responsible for this debacle?

Rather than a handful of huge banks, let’s say that we still had hundreds (if not thousands) of regional &/or niche banks spread throughout the country. Would all of them have drank from the same sub prime punch? Would they all have issued the same ill-advised CDSs?

Diversity and broad participation are natural insulators from market disruptions like we’re having today; for the same reason every broker will say diversification is a key component to wise investing, why is it that we’re so willing to put all of our banking eggs into so few baskets? More importantly, why is it that many are advocating for further consolidation? Won’t this put us at greater risk in the future?