Big bank containment strategy catches on in U.S., EU

By Kevin Drawbaugh

WASHINGTON (Reuters) - The government should be able to restrict the size of financial firms so they do not become "too big to fail," two key U.S. Democratic lawmakers said on Tuesday, echoing proposals being made in Europe.

Representative Barney Frank, chairman of a key U.S. congressional committee, told reporters that regulators could step in and reduce the size of troubled financial firms under a systemic risk oversight bill being debated by the panel.

Earlier, Representative Paul Kanjorski, chairman of the House of Representatives capital markets subcommittee, told reporters he would soon introduce a measure to prevent firms from getting so large that they threaten the wider economy.

"We are preparing an amendment to give authority to reconstruct organizations that are determined to be too large to fail," Kanjorski told reporters.

"We have to find a way to limit them from becoming too big to fail so they don't capture the government."

In a possibly sweeping assertion of government power over the financial industry, the idea of keeping mega-firms to a manageable size is spreading on both sides of the Atlantic.

As lawmakers thrash out ideas for tightening bank and capital market regulation following the worst financial crisis in decades, bankers raised the alarm.

Cutting big international banks down to size would not solve the problems highlighted by last year's crisis, Deutsche Bank Chief Executive Josef Ackermann told a regulatory conference in London on Monday.