Volcker: Financial Fix 'Like a Dimple' So Far

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"If all of the measures currently under discussion with regard to strengthening the financial system came in their most extreme form and all too quickly, there is no question in my mind that this would damage the recovery," Green said in a Nov. 17 speech in London.

The countries belonging to the Basel committee will probably agree next year on tougher capital, liquidity and leverage requirements for banks, members said. Implementation will take longer and depend on economic recovery, they said.

The measures would substantially increase amounts that banks have to set aside against emergencies, potentially reducing their lending ability, according to Josef Ackermann, chief executive of Frankfurt-based Deutsche Bank (DTBKY).

Antitrust regulators forced asset sales at bailed-out companies, such as the U.K.'s Lloyds Banking Group (LYG) and Germany's Commerzbank AG. Still, European banks are emerging from the credit crisis bigger than before, according to data compiled by Bloomberg. The data show European bank assets grew 25 percent since January 2007, compared with a 20 percent rise at U.S. lenders.

'It's Insanity'

Four U.S. institutions — Bank of America (BAC), Wells Fargo & Co., JPMorgan Chase & Co. (JPM) and Citigroup (C) — held 35 percent of the country's deposits on June 30, compared with 28 percent by the four biggest two years before, according to the FDIC and the Fed. The world's 10 largest banks at the end of 2008 had 26 percent of the assets of the top 1,500 banks, up from 18 percent in 1999, Bloomberg data show.

"It's insanity that the too-big-to-fail institutions are even bigger today than they were," said U.S. Senator Bernie Sanders, a Vermont independent, in an interview. "God forbid we have another financial crisis."

Governments should separate deposit-taking banks from those that use their own money to trade and issue securities, said Irving Kahn, 103, who has worked on Wall Street since 1928.

Reed's Apology

"I wouldn't lend you a dime if I knew you loved to gamble at a casino," said Kahn, the chairman of investment advisers Kahn Brothers Group Inc., in an interview.

John S. Reed, the former co-chief executive officer of Citigroup Inc., regrets helping to engineer the merger that created the bank, he said. Citigroup, which took $45 billion in U.S. aid under the Troubled Asset Relief Program, said yesterday that it will repay $20 billion.

"I'm sorry," Reed, 70, said in an interview. U.S. lawmakers were wrong in 1999 to repeal the Depression-era Glass- Steagall Act, he said. The act required the separation of institutions involved in capital markets from those engaged primarily in traditional customer services, such as taking deposits and making loans.

Resurrecting Glass-Steagall would reduce the need for the taxpayer bailouts that added between 9 percent and 49 percent to the profits of the 18 biggest U.S. banks in 2009, according to Dean Baker, co-director of the Center for Economic & Policy Research in Washington.

Europe's Universal Banks

Another school of thought is that outlawing institutions of a certain size or laying down universal caps on securities trading by retail banks would be impractical, ineffectual and a potential drag on growth, politicians and regulators in charge of rule-writing in the U.S. and the EU said in interviews.

"Plenty of firms got into trouble making regular commercial loans, and plenty of firms got into trouble in market-making activities," Fed Chairman Ben S. Bernanke, 56, told the Economic Club of New York on Nov. 16. "The separation of those two things per se would not necessarily lead to stability."

In continental Europe, most regulators say they see little reason to break up so-called universal banks — such as Deutsche Bank, HSBC and BNP Paribas — largely because they have withstood turmoil. HSBC didn't take the U.K. government's offer for aid, and Deutsche Bank never tapped Germany's bank-rescue fund. BNP took 5.1 billion euros as part of a program to provide funds to banks in exchange for an increase in lending. The bank raised 4.3 billion euros in a rights issue in October 2009 to reimburse the government.

Fisherman's Patience

"The crisis didn't come from here," said Daniele Nouy, secretary general of the Commission Bancaire, France's bank regulator. "We think our model, with universal banks and a single, strong regulator, works well."

The nascent economic recovery represents a serious threat to the overhaul of financial regulation, according to Representative Brad Miller, a North Carolina Democrat on the House Financial Services Committee.

"My greatest fear for the last year has been an economic collapse as bad as the Great Depression," Miller said in an interview. "My second greatest fear was that the economy would stabilize and begin to recover and the financial industry would have the clout to defeat the fundamental reforms that our nation desperately needs. My greatest fear seems less likely, lately, but my second greatest fear seems more likely every day."

With a fisherman's patience, Volcker said he may eventually get his way on financial regulation. He took a break from his efforts in July, fly-fishing in New Brunswick's Restigouche River. He landed a 28-pound Atlantic salmon, according to his staff.

"I'm not alone in this," Volcker said at the Dec. 8 conference. "I think I'm probably going to win in the end."

To contact the reporters on this story: Gadi Dechter in Washington at gdechter@bloomberg.net; Alan Katz in Paris at akatz5@bloomberg.net.