Should We Break Up the Big Banks?

Over at Red State, Eric Erickson writes:

I hope the Romney campaign seriously takes on this idea. We have created a financial situation in this country, with Dodd-Frank and other policies, that have stacked the banks against the American people. They have become so massive that they can do pretty much what they want because they can hire all the lobbyists they need to get what they want from Washington and if they falter or fail, the nation goes belly up.

It is absolutely a conservative imperative to break up the big banks. Conservatism should eschew public-private partnership at this level. The banks have, in effect, become an extension of the government in that they now exist in a wholly symbiotic and unhealthy relationship with Washington. If we want smaller government, we need smaller banks too.

I am inclined to think that he is right. My instinct is that banks that are too big to fail cannot properly be regulated — that, given their size and influence, regulatory capture is inevitable. That is what happened with Fannie Mae and Freddie Mac. Paul Ryan, John McCain, and others sought to rein them in, and their attempts were overwhelmed by the lobbying efforts of these two outfits. And what I have read suggests that TARP was largely designed by the big banks and foisted on the Bush and Obama administrations.

But presumably something would be lost if we broke up the biggest of our banks — efficiency, perhaps, and leverage. I have not, however, studied these matters with the requisite attention. What am I missing?