In its annual report for 2011, issued on Wednesday, the Federal Reserve Bank of Dallas released a startling report revealing that 52 percent of all the assets held by the entire banking industry have now become aggregated into the hands of just five companies, and the top 10 institutions have swollen so large that they possess wealth that equates to roughly half of America’s annual gross domestic product (GDP).

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It is for those reasons that Dallas Fed president Richard Fisher, who’s otherwise known as a conservative budget hawk, has embraced the radical cause of breaking up the nation’s largest banks and forever ending “too big to fail.” In a letter introducing the 2011 report, he cautions that Congress may not have gone far enough with prior attempts at financial reforms, and that those bills may even be working against the struggling economic recovery underway.

Alarming as that sounds, it’s the Dallas Fed’s chart of U.S. banking assets that’s most startling.

In his letter, Fisher adds that if the wealthiest sample group is expanded to the top 10 banks, their total assets are worth approximately half of America’s annual GDP, which eclipsed $14.5 trillion in 2010.

He goes on to suggest that Congress did not go far enough with the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act (PDF) because it did not effectively deal with the problem of institutions growing to such heights that their fall threatens the whole economy.

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Indeed, he argues, the risk of a “too big to fail” institution collapsing, which gave lawmakers the impetus for unprecedented financial bailouts in 2008, obstructs capitalism itself. Instead, Fisher writes, the banking industry must diversify — meaning lawmakers need to break out the hammer and chisel. He even warns that “megabanks” have become so powerful that they threaten the Fed’s ability to conduct monetary policy.

“Perhaps the most damaging effect of propagating [too big to fail] is the erosion of faith in American capitalism,” he adds. “Diverse groups ranging from the Occupy Wall Street movement to the Tea Party argue that government-assisted bailouts of reckless financial institutions are sociologically and politically offensive. From an economic perspective, these bailouts are certainly harmful to the efficient workings of the market.”

The report goes on to list a variety of ways the existence of “too big to fail” companies have perverted America’s capitalistic ways, insisting that “bad decisions should lead to failure.”

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Read the full report here (PDF).