I’m stunned that someone at this high a level in the financial establishment would suggest breaking up the mega-banks. I don’t know what is leading to this, but he’s off Tim Geithner’s Christmas list:

The five biggest banks in the United States are too powerful and should be broken up, Dallas Fed President Richard Fisher said on Wednesday.

The financial crisis has left the five biggest banks even more powerful than before, he said at an event in Mexico City.

The five biggest U.S. banks are: JPMorgan , Goldman Sachs , Morgan Stanley , Bank of America , and Citigroup .

“After the crisis, the five largest banks had a higher concentration of deposits than they did before the crisis,” he said. “I am of the belief personally that the power of the five largest banks is too concentrated.”

The U.S. Dodd-Frank reform and consumer protection act includes mechanisms for regulators to break up large financial companies, but imposes high hurdles for such action.

“The purpose of Dodd-Frank was to reduce the concentration of power and we have a term called ‘too big to fail’… perversely, these banks are now even bigger, they are too ‘bigger’ to fail than before.”

Last month a group of consumer advocates, academics and economists said they wanted to end “too-big-to-fail” banks, starting with Bank of America.

Fisher continued his U.S. assessment by focussing on consumer demand, which he said is driving a pick-up in the economy although risks remain.

A welcome, if unexpected, development.

My guess, and I could be talking out of my ass, is that this is an artifact of the fact that he’s one of the most extreme inflation hawks at the Fed. 

Basically, I think that he thinks that Bernanke is keeping rates at the zero bound in order to allow the too big to fail banks to dig themselves out of their holes, and he is concerned that this will set the stage for inflation.

If I am right in my analysis, his statement is actually less shocking than it appears at first glance.

H/t Chris in Paris.