Main Street

Strengthening Wall Street Reform

As the Senate has begun to take up several important amendments that could strengthen the Wall Street reform bill, I’d been trying to recall where I first heard this phrase:

“If they’re too big to fail, they’re too big period.”

I just remembered! It was Robert Reich on his old blog back in October of 2008 around the time of the Bush administration’s big bank bailouts. And, of course, in the wake of those bailouts the biggest of the big financial institutions got even bigger and more dominant.

One of the key amendments being debated to strengthen the Wall Street reform bill is one based on the Safe Banking Act, and it’s being offered by Sen. Sherrod Brown (D-OH) and Sen. Ted Kaufman (D-DE).

It would address “too big to fail” by limiting the size and leverage of financial institutions:

Size Limits on Our Largest Financial Institutions

* Imposes a strict 10% cap on any bank holding company’s or thrift holding company’s share of the total amount of deposits of insured depository institutions in the United States.

* Establishes limits on the liabilities of large banking and nonbanking financial institutions:

* A limit on the non-deposit liabilities (including off-balance-sheet ones) of a bank holding company or thrift holding company of 2% of GDP.

* A limit on the overall liabilities (including off-balance-sheet ones) of any non-bank financial institution – i.e. one that the proposed Financial Stability Oversight Council deems a risk to the financial system – regulated by the Federal Reserve of 3% of GDP.

Institute Statutory Leverage Ratio

* Codifies a 6% leverage limit for bank holding companies and selected nonbank financial institutions into law.

The New York Times is reporting that the Brown-Kaufman amendment “is among the most deeply dreaded by Wall Street,” and could become the “hardest to defeat.”

Liberal Democrats in the Senate, emboldened by a wave of populism, are trying to make financial regulatory legislation far tougher on Wall Street, potentially restricting or breaking up the biggest banks and financial companies.

The liberal amendment that could be hardest to defeat — and is among the most deeply dreaded by Wall Street — also has some of the purest populist appeal: a proposal by Senator Sherrod Brown of Ohio and Senator Ted Kaufman of Delaware to break up the nation’s biggest banks by imposing caps on the deposits they can hold and limits on other liabilities.

On Tuesday, Senator Richard J. Durbin of Illinois, the No. 2 Democrat, announced that he would support the Brown-Kaufman proposal, which would require some of Wall Street’s heaviest hitters, including Citigroup and Goldman Sachs, to shrink in size. On Wednesday, the majority leader, Harry Reid, called the proposal “intriguing.”

The website at A New Way Forward is now reporting via a whip count page on the Brown-Kaufman amendment that Majority Leader Reid is listed as a supporter — and just added Sen. Jim Webb (D-VA) as a supporter as well.

Americans for Financial Reform supports the Brown-Kaufman amendment. The folks at A New Way Forward have Brown-Kaufman amendment action page where you can sign a petition and connect with your Senators to urge their support.

Tags: Wall Street Reform