Nov. 5 (Bloomberg) -- Nouriel Roubini, the New York University professor who predicted the financial crisis in 2006, said mergers between U.S. banks may create institutions that pose too great a risk to financial stability.

“We had a too-big-to-fail problem in the past, but now- the-too-big-to-fail problem has become bigger,” Roubini, chairman of New York-based Roubini Global Economics, said at an event in Dublin today. “We are creating a bigger monster.”

Roubini said there’s been “massive consolidation” among U.S. banks after a series of mergers during the worst economic crisis since the Great Depression. Bank of America Corp., purchased Merrill Lynch & Co and Countrywide Financial Corp, while Wells Fargo & Co. took over Wachovia Corp. last year.

“We have no way to deal with insolvency in an orderly way,” Roubini said during a panel discussion at a conference on financial services. “If a financial institution is too big to fail, it’s too big. If it’s too big, we should break it up.”

Roubini predicted in July 2006 the financial crisis that spurred more than $1.6 trillion of credit losses and asset writedowns at global financial companies.

He said “financial supermarkets” combining commercial banking, investment banking, insurance and asset management have proved a “disaster”, citing Citigroup Inc., which has received $45 billion from the U.S. government.

“Banks should be banks, providing credit to the real economy,” he said. “Investment banks should be involved in what broker-dealers do and that is underwriting. There is no reason why a shareholder should be taking a bundled risk.”

To contact the reporter on this story: Ian Guider in Dublin at iguider@bloomberg.net; Louisa Fahy at lnesbitt@bloomberg.net

Last Updated: November 5, 2009 12:34 EST