L a rg e c o n c e n tra tio n s o f fi n a n c ia l p o w e r in a fe w in s tit u tio n s e n d a n g e r th e o v e ra ll e c o n o m y b y in c re a s in g th e ris k s o f p o o r d e c is io n s a n d a m p lif y in g th e h a rm s c a u s e d b y fa ilu re . C o n c e n tra tio n m a y b e s e e n b y s o m e a s a n a t u ra l o u tc o m e o f o p e ra tio n o f th e m a rk e t, b u t o th e r s s e e s u c h c o n c e n tra tio n a s e v id e n c e th a t th e m a rk e t w ill n o t a n d c a n n o t c o rre c t it s e lf in a tim e ly w a y in a m a jo r c ris is . R e g u la to r s n e e d th e a b ilit y to p re v e n t s u c h c o n c e n tra tio n s o r re s tric t th e m in w a y s th a t p ro te c t th e p u b lic .
S o m e c itiz e n s fi n d it in c o m p re h e n s ib le th a t th e fa ilu re o f a fe w in s tit u tio n s s h o u ld b e a llo w e d to c a u s e w id e s p re a d e c o n o m ic c r is is . T h e “P e a r l H a r b o r ” a n a lo g y w a s u s e d — re c a llin g th e c o n s e q u e n c e s o f lin in g u p b a t tle s h ip s in o n e lo c a tio n w h e re th e y c o u ld b e c o n v e n ie n tly b o m b e d . M u c h o f th e re a s o n in g fo r th is p o s s ib ilit y a ls o re fl e c te d a b e lie f th a t w e ll-r u n o rg a n iz a tio n s h a v e d e v e lo p e d r is k m a n a g e m e n t p r a c tic e s th a t th e fi n a n c ia l s e c to r h a s s y s te m a tic a lly ig n o re d . C o n c e r n s in th is p o s s ib ilit y n o t o n ly re fl e c t m a t te r s o f s iz e a n d s c a le o f c o n c e n t r a te d e c o n o m ic p o w e r, b u t a ls o o f “p o s itio n ” w ith in th e o v e r a ll e c o n o m y . A m o n g th e c h ie f q u e s tio n s w a s w h e th e r th e c o n c e n t r a tio n is in a k e y s u b s e c to r th a t m a n y o th e r fi n a n c ia l in te re s t s d e p e n d o n a n d th e p ro b a b ilit y th a t fa ilu re in th is k e y s e c to r w ill th e n r ip p le o u t n a tio n w id e w ith s e v e re c o n s e q u e n c e s . T h e s e d is c u s s io n s a ls o e x p lo re d o u r p a s t e x p e r ie n c e s w ith fa ilin g b a n k s , r a ilro a d s , a n d u tilitie s . T h e re w a s a n u n d e r s t a n d in g th a t s u c h e x p e r ie n c e s p ro d u c e d v a r io u s p o lic y re s p o n s e s , w ith v a r y in g d e g re e s o f s u c c e s s . T h e re w a s a ls o a s e n s e th a t th e le s s o n s le a r n e d fro m s u c h c r is e s te n d to b e te m p o r a r y a n d th a t s a fe g u a rd s a re o f te n a b a n d o n e d o r s u b je c te d to “w o r k -a -ro u n d s ”. T h e c o n v e r s a tio n a c k n o w le d g e d th e te n s io n in o u r s o c ie t y b e t w e e n p r u d e n t b u s in e s s p r a c tic e s a n d s p e c u la tiv e z e a l.
6
