The problem is that they're both too big to fail and too big to prosecute without putting the US and world financial system at risk of a meltdown.
The banks need the size, they say, because they cannot compete in the global market if they are smaller - economies of scale argument. They say larger banks like the Swiss, Japanese, French, British ones would cripple them if they had to compete hobbled by small size because their competition's big size would allow them to compete at smaller profit margins.
It's a real problem, IMO, that leads to another real problem - to big to fail or prosecute banks are incented to take on too much risk, to step over the legal line, because they know they can do so without significant risk of significant legal or financial consequences.
Smaller institutions do not have the low risk advantage that too big to fail institutions enjoy and could be prosecuted into oblivion.
I assume, at worst, Peregrine is dealing with entities that would not put the world markets at risk. Still, the possibilities are legion.
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