HispanicBusiness

The 2012 Annual Report of the Financial Stability Oversight Council, approved last July, identifies five financial institutions perceived as too big or too complex to fail.

The report describes these "systematically important banks" as characterized by their operational complexity and interconnectedness. Such complexity manifests itself in numerous and diverse lines of business and locations, which lead to "legal structures with activities spread over hundreds, and in some cases thousands, of subsidiaries."

The five U.S. banks identified in the report, to illustrate such complexity , are JP Morgan, Bank of America, Citigroup, Goldman Sachs and Morgan Stanley. For instance, as of May 2012, JP Morgan had 5,183 subsidiaries, 57 percent of them operating in 72 different countries.

However, the size itself of these institutions is not a problem. The concern is that in these complex banks, "behavioral vulnerability" increases with their expansion. The perception is that, because of their size and complexity, government cannot let them fail, which generates more risk-taking and therefore less market discipline.

The report highlights the fact that the U.S. financial services industry has become more concentrated. At the start of 2012, the report says, the 10 largest U.S. banks held 52 percent of industry assets. By contrast, before the last recession, at the end of 2006, this figure was 45 percent.

Isaac Cohen is an international analyst and consultant, a commentator on economic and financial issues for CNN en Español TV and radio, and a former director, UNECLAC Washington Office.