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Under the Dodd-Frank Act banks that are “systemic threats” to the financial system or Too Big To Fail are supposed to be dismantled to avoid the necessity for taxpayer bailouts and subsidies. The law has a provision under Title I known as the “Financial Stability Act of 2010″ which created the Financial Stability Oversight Council which is charged with identifying and responding to risks to the financial stability of the United States.

Or at least that’s the theory. So far the power has not been used which many are claiming is due to the incredible sophistication of the megabanks not a lack of will by public officials. But now US and UK regulators are saying that’s not true and that the Too Big To Fail banks can be broken up.

Even one of the largest global banks could be taken apart safely by U.S. government authorities if it were to fail today, according to banking regulators from the U.S. and U.K.

A U.S. plan for seizing and liquidating a major bank would work if necessary, although it would be messy, according to Art Murton, a senior Federal Deposit Insurance Corp. official in charge of planning how to dismantle complex firms, and Bank of England Deputy Governor Paul Tucker. They spoke yesterday at an Institute of International Finance event in Washington. “I think U.S. authorities could do it today — and I mean today,” said Tucker, who has worked with U.S. regulators on cross-border hurdles to taking down an international firm. “A global financial system will not survive if we don’t crack this problem.”

Is former Citigroup executive and current Treasury Secretary Jack Lew listening? Because his former employer would have been broken up if Tim Geithner had not slow walked President Obama, or so it is claimed.  If it could have been done in 2009 it certainly can be done now.

The issue is how would the FDIC go about taking over one of these massive banks and ushering it through bankruptcy without causing a panic. They know how to do it to regional and local banks well enough but the Too Big To Fail banks are another story. One of the proposed solution is for the big banks to have “living wills” that detail how they can be broken up without catastrophe.

While U.S. regulators hammer out this last-resort scenario for handling bank failures, the law says the global banks have to figure out how to go bankrupt safely. Dodd-Frank required banks to file so-called living wills, which are meant to describe how a major bank could undergo bankruptcy without damaging the financial system. If the FDIC and Federal Reserve aren’t satisfied that the big banks are prepared for their own safe demise, the companies could be forced by the regulators to restructure or sell off pieces.

Needless to say Wall Street isn’t pleased. Goldman Sachs and JPMorgan Chase have already been told to file a second living will as the first did not meet the regulators’ expectations.

It will be interesting to see if the regulators decide to enforce the law which would require JPMorgan and Goldman to sell off assets if they can’t provide a detailed plan for safe bankruptcy. The day Wall Street submits to regulators forcing them to sell off pieces of their banks to comply with the law, is the day Too Big To Fail might actually end. Until then it is lots of empty happy talk from Washington and Wall Street.