It’s been a long time since the phrase “too big to fail” (TBTF) was part of daily financial conversation. Yet the concept hasn’t gone away. In fact, it’s gotten worse. Both the Federal Reserve and the FDIC have recently warned that five of America’s eight largest bank have no plan to wind down in the event of a financial crisis.

But why plan for that? The largest banks don’t need a plan to wind down. They’re the winners.

America currently has about 5,400 different banks. Some are one-branch mom and pop locations. Others are regional powers. And a few have the TBTF moniker. Yet that number is down from over 14,000 in 1984. Give it another 32 years, and the TBTF banks may be the only game in town.

Why do industries consolidate? There are usually a few reasons. They do if there’s an economy of scale, like automakers in the last century.

But banks, at least those in the business of taking in deposits and making loans, don’t have an economy of scale compared to an industrial firm like an automaker. Even investment banks won’t necessarily get more efficient as they get larger—if anything, they tend to get more bureaucratic.

Or, worse, each division gets more isolated from the others. So understanding a bank’s entire portfolio and exposure to risky assets will only be known by a few at the top. Such managers might have a big picture snapshot of what the bank owns, but might not understand how all those positions interrelate.

Another reason for consolidation is a favorable regulatory environment. This the banks have in spades. If the government was really concerned about the banking system, it would deregulate. How much? Enough so that new banks were being opened every year and the number of players in the industry was growing, not shrinking.

The most important reform is to bring back the full capitalistic process to the banking sector: allowing banks to go bankrupt no matter what their size. When the TBTF banks realize that they won’t get a taxpayer bailout in times of trouble, they’ll have the incentive to make any and all necessary changes, including a voluntary breakup. In a free market, nobody is too big to fail.

While those changes are necessary, they’re not likely to happen. And the regulatory warnings seem to be falling on deaf ears. Sure, your bank deposits are insured via the FDIC. But in the event of another systemic crisis, the FDIC will be cash-strapped. There isn’t enough physical currency to cover all deposits, nor is there a large enough balance sheet at the FDIC to make immediate cash payments.

Meanwhile, the Fed’s warnings also come at a time when they’ve asked the banking system to test how their balance sheets would perform if interest rates were to go negative.

That’s the complete opposite of the Fed’s current public intent to continue gradually raising interest rates.

While it’s generally accepted that lowering interest rates induces people to borrow more, banks are reluctant to lend when they can’t earn a decent return. The question then becomes, are banks too big to fail, or are they too hobbled with regulations and contradictory instructions to succeed?

Andrew Packer is a Senior Financial Editor with NewsMax Media. He currently writes the Insider Hotline investment advisory, serves as investment director for the Financial Braintrust, and is managing editor of Financial Intelligence Report. To read more of his work, GO HERE NOW.