Increasingly, leading bankers repeat versions of the argument made recently by E. Gerald Corrigan in his Dolan Lecture at Fairfield University.  Corrigan, former President of the New York Fed and a senior executive at Goldman Sachs for more than a decade, makes three main points.

   1. "Large Integrated Financial Groups" - at or around their current size - offer unique functions that cannot otherwise be provided.  The economy needs these Groups.
   2. Breaking up such Groups would be extremely complex and almost certainly very disruptive.
   3. An "Enhanced Resolution Authority" can mitigate the problems that are likely to occur in the future, when one or more Group fails.

These assertions are all completely wrong.

Gerry Corrigan's first claim (p.4), that Large Groups are indispensable, is completely at odds with the data.  The current size of our biggest financial firms is a recent phenomenon.  In 1998, when Corrigan already worked there, Goldman Sachs was roughly ¼ of its current size and was regarded a top international investment bank.

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Corrigan's second claim, that breaking up banks would be hard to do, is based on assessing a "straw man" proposal - that the government dictate the microstructure of any bank downsizing.  But no one serious has put forward such an idea.

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Corrigan's final claim, that an Enhanced Resolution Authority can deal with the manifest problems of Too Big To Fail, is simply wishful thinking.

It is a fantasy to think that any national Resolution Authority would make a difference.  All banking experts, when pressed, agree that you need to have a cross-border Resolution Authority in order to deal with the failure of a Large International Integrated Financial Group.  Show me the G20 process in place or any other international initiative that can achieve this faster than in 20 years.  (I made this point recently to leading financial officials; one of the most influential people present said, in effect, "it will never happen".)