Happily, though, reducing the perils of gargantuan institutions — and the threat to taxpayers — is an idea that seems to be taking hold in Washington. To be sure, the army arguing for change is far outgunned by the battalions of bankers and lobbyists working to maintain the status quo. But some combatants seeking reform believe they are making headway.

Richard W. Fisher, the president of the Federal Reserve Bank of Dallas, is one. In a speech last month he described, quite colorfully, the problems of these unwieldy institutions and the regulatory ethic “that coddles survival of the fattest rather than promoting survival of the fittest.” Bank regulators should follow the lead of the health authorities battling obesity rates among our population, he said, adding that he favored “an international accord that would break up these institutions into more manageable size.”

This is a banker talking, not a member of the Occupy Wall Street drum circle.

And yet, some have criticized Mr. Fisher for voicing these sensible views — a sign to him that the issue is gaining traction. In an interview last week, he said: “Judging from the anguished calls I received from lobbyists for the megabanks, the ‘attaboy’ calls I am getting from regional and community bankers and the requests for copies of the speech from senators on both sides of the aisle, it appears this is a hot topic.”

That Mr. Fisher has received encouragement from both conservatives and liberals on his views leads him to conclude that “this is an issue that can transcend bipartisan politics.”

Last week, Senator Sherrod Brown, the Ohio Democrat who leads the Senate Banking subcommittee on financial institutions and consumer protection, held a hearing on how to shield Main Street from what he calls megabank risk. In April 2010, he was a co-sponsor of the Safe Banking Act of 2010 with Ted Kaufman, the former Democratic senator from Delaware. The bill, which would break up some of the largest banks by requiring caps on institution size and leverage, ran into a buzz saw of opposition from the usual suspects.

But Mr. Brown soldiers on; he said in an interview on Thursday that he, too, believes the debate is changing. “We’re seeing sentiment grow on the Brown-Kaufman idea,” he said. “We are seeing some people who are pretty conservative here understanding the implicit subsidies these megabanks receive. Our goal is that senators understand this to the point of wanting to take action.”

He said he hoped his hearing would educate colleagues on the significant financial bounties received by big banks that are not allowed to fail, especially their lower borrowing costs — a result of investor belief that taxpayers will rescue them. This places these banks at an unfair advantage over their smaller competitors.

“Why should the Bank of America enjoy an advantage the Peoples Bank in Coldwater, Ohio, doesn’t get?” Mr. Brown asked. “The government’s got to pull away from this and level the playing field.”

Providing testimony at Mr. Brown’s hearing were Sheila Bair, former chairwoman of the Federal Deposit Insurance Corporation; Simon Johnson, a professor at the Sloan School of Management at M.I.T.; Philip L. Swagel, a professor of international economic policy at the University of Maryland School of Public Policy; and Arthur E. Wilmarth Jr., a law professor at George Washington University Law School.

Ms. Bair, one of the few regulators to have fought the anything-goes bailouts during the crisis, espoused her usual no-nonsense perspective on a variety of important topics. “I know that many members of this subcommittee heard the same arguments that I heard during the crisis — that bailouts were necessary or the ‘entire system’ would come down,” she said. “But we never really had good, detailed information about the derivatives counterparties, bond holders and others who we were ultimately benefiting from the bailouts and why they needed protecting.”

Such details are still kept under wraps. Ms. Bair urged the Fed and the F.D.I.C. to write rules requiring banks to report on their interrelationships. That way, distress at one institution can be recognized before it causes crippling losses at another.

In her testimony, Ms. Bair also urged regulators to write rules requiring executives and boards to be “personally accountable for monitoring and compliance” of the institutions they oversee.

When I asked her how this could be done, she said: “There should be personal certifications and, at a minimum, civil penalties assessed by the banking regulators against the boards and management, as well as compensation clawbacks if there are losses to the organization because of proprietary trading. Regulators can’t run these financial institutions for the management.

“What in the world are they being paid for?”

At the moment, they are being paid for taking risks that generate lush bonuses when things go well but that require taxpayer bailouts when the tide turns. Main Street understands that this is wrong and that allowing it to continue is dangerous. It’s past time that Washington did something about it.

Article source: http://feeds.nytimes.com/click.phdo?i=7e3b9f48d38830029ac1644657dd736b