Some of the world's largest financial firms on Monday urged a top U.S. lawmaker not to pursue big bank break-up legislation, an idea attracting interest in Congress and causing alarm on Wall Street.

The Financial Services Forum, a lobbying group for CEOs of firms including Goldman Sachs and JPMorgan Chase , said empowering regulators to break up too-big-to-fail banks could lead to long-term damage to the U.S. economy.

The forum made its comments in a letter to U.S. House of Representatives Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, that was obtained by Reuters a day before Frank's panel resumes work on financial reform legislation.

Seeking to shift Capitol Hill's debate on what to do about firms that may endanger global economic stability, the forum said size alone does not make firms risky. Rather, it said, over-concentration in specific markets raises levels of risk.

In addition, the forum said, large firms can make bigger loans, offer customers more products and services and achieve greater geographic reach.

To be sure, 'too big to fail' must be eliminated. But the problem is not that some institutions are too large. It's that there is currently no legal authority to unwind, in an orderly way, a failing financial conglomerate, it said.

Arguments about concentration risk, global competitiveness and firms' sheer size will dominate debate in the days ahead as Congress tries to craft what is shaping up to be the most contentious piece of the government's regulatory response to last year's financial crisis, the worst in generations.

The Obama administration and Congressional Democrats want a new way to handle failing firms. The goal is to prevent another debacle like last year's, when Lehman Brothers collapsed, triggering a credit crisis, and taxpayers bailed out AIG , Citigroup and Bank of America , among others.

Frank's committee will debate a bill beginning on Tuesday that would give the government far-reaching new powers to regulate and restructure large financial firms whose failure could undermine the broader financial system and the economy.

The Senate Banking Committee has tentatively scheduled a working session for Thursday on similar legislation, introduced last week by committee Chairman Christopher Dodd.

Both committees' debates are expected to continue for some time. No final House floor vote is likely before December, and analysts don't expect final Senate action until early 2010.

At the Wall Street Journal CEO Council conference, White House Chief of Staff Rahm Emanuel said he is planning to meet members of Frank's committee late Monday to discuss regulatory reform.

He said that he expects Frank's committee to vote on the bill this week and the full House of Representatives could start debate in the next two weeks.

As soon as this week, Democratic Representative Paul Kanjorski, chairman of the House capital markets subcommittee, is expected to offer an amendment that would try to prevent firms from getting too big to fail in the first place.

Senator Bernie Sanders, a Vermont independent, has introduced a similar bill to give government authorities the power to identify and break up firms that are too big to fail.

Small- and mid-sized banks, which have demonstrated considerable political clout through the financial reform debate, will support such legislation, which would cut their largest rivals down to size, lobbyists said.

In the European Union, regulators are considering measures to force banks across Europe to sell assets and sometimes even break up to compensate for massive state aid they have received.

Although we think that breaking up the larger banks would be positive for the U.S. economy as it would enhance competition ... we acknowledge that any action on breaking up large banks is likely a couple years out, said Paul Miller, policy analyst at investment firm FBR Capital Markets.

(Additional reporting by John Poirier)