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Big banks: A break-up postponed but perhaps not cancelled

Ever since president Barack Obama shared a podium with Paul Volcker in January to propose a ban on retail-deposit-funded banks engaging in proprietary trading and hedge fund or private equity investing, the threat of a forced break-up of large banks has hung in the air.

As new legislation slowly developed in Congress during the spring, that threat receded as legislators focused on capital rules and resolution regimes. It would seem perverse for the federal government or regulators to break up Bank of America now, having pressed it to do the last two deals that made it so large. And earnings from Merrill’s traders have kept the bank in profit while consumers defaulted, so its size and complexity make it look less risky not more so.

A senior banker who recently left Bank of America Merrill Lynch says: "The White House is not going to push for bank break-ups. They don’t understand what is going on, and simply could not break them up if they tried. And the Federal Reserve does not seem to be pushing to break up the banks either. It’s not practicable and it’s all a bit of talk. That said, it is likely the Federal Reserve will try to limit growth in some way.

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