Banks Sense Danger, Warn Congress on Breakup Power

WASHINGTON (Reuters) - Some of the world's largest financial firms on Monday urged a top U.S. lawmaker not to pursue big bank break-up legislation, an idea attracting interest in Congress and causing alarm on Wall Street.

The Financial Services Forum, a lobbying group for CEOs of firms including Goldman Sachs and JPMorgan Chase , said empowering regulators to break up "too-big-to-fail" banks "could lead to long-term damage to the U.S. economy."

The forum made its comments in a letter to U.S. House of Representatives Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, that was obtained by Reuters a day before Frank's panel resumes work on financial reform legislation.

Seeking to shift Capitol Hill's debate on what to do about firms that may endanger global economic stability, the forum said size alone does not make firms risky. Rather, it said, over-concentration in specific markets raises levels of risk.

In addition, the forum said, large firms can make bigger loans, offer customers more products and services and achieve greater geographic reach.

"To be sure, 'too big to fail' must be eliminated. But the problem is not that some institutions are too large. It's that there is currently no legal authority to unwind, in an orderly way, a failing financial conglomerate," it said.

Arguments about concentration risk, global competitiveness and firms' sheer size will dominate debate in the days ahead as Congress tries to craft what is shaping up to be the most contentious piece of the government's regulatory response to last year's financial crisis, the worst in generations.

The Obama administration and Congressional Democrats want a new way to handle failing firms. The goal is to prevent another debacle like last year's, when Lehman Brothers collapsed, triggering a credit crisis, and taxpayers bailed out AIG , Citigroup and Bank of America , among others.