Banks that were deemed too big to fail in the run up to the recent financial meltdown have gotten even larger as a result of assistance from the federal government.

The bailouts favored big banks, which can borrow money at a lower rate because of their perceived lower risk of failure. However, the imbalance could eventually weed out smaller outfits, with some senior government officials insisting that consumers already are seeing their choices narrow and the costs go up for financial services.

There also is the concern that banks could return to risky lending following the bailouts, which may have reinforced their presumptions that the federal government will intervene rather than allow them to fail.

At present, about one of every two mortgages and two of every three credit cards are issued by J.P. Morgan Chase, Bank of America, Wells Fargo, and Citigroup, according to government data. Regulators are watching these banks to ensure consumers continue to have choices.

Source: Washington Post, David Cho (08/28/09)