Richard Fisher, president of the Federal Reserve Bank of Dallas, said on Wednesday that the largest American banks still posed a major risk to the US and were "too dangerous to permit".
In a speech in New York, Mr Fisher said: "Downsizing the behemoths over time into institutions that can be prudently managed and regulated across borders is the appropriate policy response. Then, creative destruction can work its wonders in the financial sector, just as it does elsewhere in our economy."
He warned that the US banking had "become more concentrated" with five of the largest banks accounting for half the industry's assets.
"Sustaining too big-to-fail-ism and maintaining the cocoon of protection of SIFIs [systemically important financial institutions] is counter-productive, expensive and socially questionable. Perhaps the financial equivalent of irreversible lap-band or gastric bypass surgery is the only way to treat the pathology of financial obesity, contain the relentless expansion of these banks and downsize them to manageable proportions," said Mr Fisher.
Since the financial crisis regulators have frequently discussed the problem of too-big-to-fail banks. In the UK, the Independent Commission on Banking (ICB) last year recommended reforms designed to reduce the risk posed to the British economy by the country's largest banks.
US banks total assets are equivalent to about 100pc of America's annual economic output. However, in the UK the ratio is more than 400pc of UK GDP. As in Britain, US banks have moved to reduce the size of their balance sheets since the crisis, however policymakers remain worried that the failure of a major lender would still lead to turmoil.
A team from the Treasury is currently looking to how to implement the ICB's reform package, which will form the basis of new primary legislation. .
The Telegraph
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