Josh Marshall: "When do we downsize these banks? A key part of the crisis, perhaps the key part of the crisis is that these banks were so big that we could not let them endure the normal fate of failed businesses, which is to fail. So when do we break them up into more smaller entities? Yes, we've got our hands full now. But companies always fight being broken up. So it'll be much harder if and when these companies struggle back to some level of health. So when does that happen?"
The most likely answer is "never", but under current circumstances the answer is almost certainly "not in any meaningful timeframe". Eight years passed between the DoJ's first antitrust filing against Ma Bell and the settlement, plus another two years to implement the settlement (it would take only twenty-one years for Ma Bell to reconstitute itself into a virtually nationwide local phone service provider, though the telecommuncations market had changed significantly during those two decades). The banks, of course, are much large businesses that directly affect much more of the US economy—even in the lean years of the '50s and '60s, the financial sector accounted for 7-10% of all US profits. Reorganizing the banking sector under current circumstances is impossible.
Now, circumstances can change. In particular if the banksters suddenly think they're about to be screwed by the Chinese Communist Party, they might accept wholesale industry reorganization. Likewise if the US economy continues to tank beyond even Geithner's stress tests and even more mortgage debt starts selling at 5 cents on the dollar, the government will have more leverage in the bailout. Thirdly, Congress could start feeling its oats and threaten to pass more and more dire financial regulation, which might press bank management into a deal sooner rather than later. But absent either a crisis much worse than the present situation, or a left-right coalition of free-market Republicans and anti-corporate Democrats, Citigroup, Wells Fargo, and the like will still have hundreds of billions or trillions of assets under management.
I think the question of bank consolidation needs to be looked at from multiple angles. Usually people talk about large banks as a problem because the banks become "too big to fail" which leaves the government in sticky situations like the one we find ourselves in today. But in addition, a oligopoly or near-oligopoly will tend to reduce competition and thus drive up prices and profits. It's plausible that "decreased competition among banks" is one of the reasons for the run-up in financial sector profits over the last three decades.