WASHINGTON — Though the Federal Deposit Insurance Corp. managed to avert two crippling bank failures in the past week, concern is growing that the government's quick fixes may prove costly over the long haul.

Selling Wachovia Corp.'s banking operation to Citigroup Inc. would create a company with $2.9 trillion of assets. That FDIC-assisted deal was announced days after the government sold Washington Mutual Inc.'s banking operation to JPMorgan Chase & Co., creating a $2.1 trillion company. And once Bank of America Corp. completes its deal for Merrill Lynch & Co. Inc., it would have $1.9 trillion of assets.

Yes, those three companies have dominated the industry for years, but at that size, Citi would be nearly five times as big as the fourth-largest banking company, Wells Fargo & Co., with $609 billion in assets. Citi also would be 25 times as large as Fifth Third Bancorp.

The deals are fanning concern about concentrating more risk in fewer institutions. They are also leading to questions about how difficult it is to manage such huge companies — and to regulate them.

"You're concentrating more and more of the banking system in the hands of fewer and fewer people," said Bill Longbrake, the former Wamu vice chairman who is now a director at First Financial Northwest Inc. "That by definition creates systemic risk in the long run."

Camden Fine, the president of the Independent Community Bankers of America, agreed with that assessment. "One of the tragic consequences of this whole financial crisis is that our commercial banking system is becoming more risky, not less risky, as a result of these enormous concentrations of assets in the hands of just three CEOs," he said.

Former FDIC Chairman L. William Seidman said bigger the bank, the more costly its failure, but bigger also means more diversified.

"They will be more expensive if they collapse," he said. "But what you're doing is creating diversified banks with units that have had good management and have been able to stay in a reasonable strong position."

That may be true about JPMorgan Chase and B of A, but there is more concern surrounding the Citi-Wachovia deal. Citi has been hit hard by mortgage-related losses this year, making it an unusual white knight.

"I was surprised that Citi wound up being the winner on Wachovia," said former Comptroller of the Currency Robert Clarke, now a senior partner at Bracewell & Giuliani LLP. "You could say it reflects well on Citi that regulators think it has regained its strength. But the bad news is potentially you're visiting whatever problems Wachovia had on a bank that has been perceived to not be as strong as it needs to be."

Observers said bigger institutions can have outsized influence over their regulators.

"You have a vested interest in getting bigger, because the bigger they get, the less likely the government is to let them fail," said Douglas Landy, a partner in the banking regulatory practice at Allen & Overy LLP. "We've set a moral hazard out there that, while maybe unavoidable, is clearly there."

Mr. Clarke said that risk could be countered if regulators are vigilant about making sure the newly expanded companies are well diversified.

"The philosophy has to be you should diversify and avoid risk," he said.

There is widespread agreement that the deals would increase the systemic risk facing the industry, but some observers said the FDIC still made the right decision for the banking system.

"What we have done is make 'too big to fail' a part of our accepted operating now," Mr. Seidman said. "In return for that moral hazard, which will always be there, we are getting bigger, stronger, more diversified banks. … You're weeding out bad bankers and businesses that have been bad, and you're ending up with what should be stronger banks. That doesn't mean they'll never get in trouble down the road, but I think for some time we'll have a stronger banking system."

Observers said that gets to the heart of the current policymaking process; regulators are surrounded by problems from failing banks to suddenly risky money market mutual funds and are more focused on solving today's problem than establishing a framework for the future.

"It's hard to think about the long range when the crisis is upon you, and at the moment the whole pressure is to just act to the current situation," Mr. Longbrake said. "Not much thinking has happened on the long term."

Proving the point, Federal Reserve Board Chairman Ben Bernanke told Congress last week that companies should be prevented from growing so much that they become systemic risks to the economy. But on Monday morning he praised the FDIC's actions, saying they "demonstrate our government's unwavering commitment to financial and economic stability."

Many observers lamented the long-term implications of the FDIC's move, but few said the agency had any other choice if it wanted to avoid failures that could have wiped out the Deposit Insurance Fund.

"They've cut amazing deals to be able to save the Deposit Insurance Fund a lot of money," Mr. Clarke said.

Why didn't the FDIC avoid adding to the size of any one institution by breaking the Wachovia and Wamu operations up and selling pieces to interested buyers?

Most observers agreed that strategy would have left the government holding billions of bad assets, particularly from Wamu.

"Wamu was nothing but mortgages and subprime credit cards," said Karen Shaw Petrou, the managing director of Federal Financial Analytics Inc.

Those assets would have been very difficult to sell in a breakup scenario.

The breakup tactic would be more complicated at Wachovia, since it was aided by "open-bank assistance." Under the FDIC Improvement Act of 1991, the agency has to make the "least-cost resolution" when resolving troubled banks.

Breaking up Wachovia was surely not the least costly option, Ms. Petrou said.

Observers said the jockeying that has created the larger companies will fuel debate next year over how to reform financial services oversight.

It is also likely to lead to a renewed push to repeal the 1994 law that prevents any one bank from holding more than 10% of the nation's deposits.

B of A now has two powerful allies in Citi and JPMorgan Chase.

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