Brits bust up banks; will the U.S. follow suit?

In a move that could be an indication of how the U.S. will handle the problem of banks deemed "too big to fail," the United Kingdom is forcing some of Britain's biggest banks to split themselves up.

According to this article in the Washington Post, the Royal Bank of Scotland, Lloyds Banking Group and Northern Rock have all been ordered to scale down. RBS and Lloyds are shedding branches and spinning off various divisions; Northern Rock is being split in half.These three banks were all beneficiaries of the British government's intervention on behalf of troubled financial institutions last fall (yes, they bailed out their banks, too). Now, the U.K.'s finance regulators, along with regulators in the European Union, are requiring the banks to split up if they want access to any more bailout money. They have concluded that breaking up the banks is the only way to prevent another collapse like the one last fall. In addition, the spun-off parts are being sold to companies or investors that aren't already involved in England's banks, a move designed to increase competition in the fiance sector of the economy.

So far, American regulators have taken a more hands-off approach when it comes to involvement in bailed-out banks' affairs, but it's safe to say that the government will be watching very closely to see if Britain's move is successful. If it is, it's certainly possible that the Obama administration could borrow a page from England's playbook and force some of the bigger bailed-out banks as well as conglomerates like AIG to shrink if they want to keep their access to Uncle Sam's wallet.

Officials in favor of letting big banks remain at their current size say larger companies are in a better position to provide services to multinational companies in an increasingly global marketplace. Those who would rather see the U.S.'s biggest banks scaled down counter that the risk to our entire economy is high when banks are allowed to grow too large. They also contend that bailed-out banks take more risks because they count on the government to rescue them if their investments go sour.

There is one part of the British plan that ordinary American taxpayers would probably love to see implemented in our country: They're not letting anyone who works at a bailed-out bank and earns more than $65,000 a year to receive any bonuses.