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: Brown-Kaufman, too big to fail, Wall Street Reform
A year ago Wall Street’s financial rupture sent the economy hurtling into a massive crisis, crushing tens of millions of Americans in an avalanche of unemployment, underemployment, home foreclosures, reduced incomes and lost benefits. That financial rupture was caused by a combination of rapacious, mindless greed on Wall Street, the then-bloated housing bubble, and the failure of both regulators and of the financial regulatory structure.
Tomorrow the Senate Banking Committee will begin to take up Senator Chris Dodd’s (D-CT) proposals for sweeping financial regulatory changes. In a statement announcing the proposed legislation last week, committee chairman Dodd said:
“Over the past year, Americans have faced the worst financial crisis since the Great Depression. Millions of Americans have lost their homes, their jobs, and their savings – and yet, they’ve watched some of the people and institutions that caused this mess collect million dollar bonuses and receive billion dollar bailouts.”
“Those hard working Americans are asking, what is the government doing to ensure their economic security?”
“It is the job of this Congress to restore responsibility and accountability in our financial system to give Americans confidence that there is a system in place that works for and protects them.”
“We must create a sound foundation to grow the economy and create jobs.”
“The financial crisis exposed a financial regulatory structure that was the product of historic accident, created piece by piece over decades with little thought given to how it would function as a whole, and unable to prevent threats to our economic security.”
“For decades, Washington has failed to deliver the substantial reform we need. If we fail again this time, our economy will be vulnerable to another crisis.”
Both the Obama Administration and the House Financial Services Committee have developed separate regulatory reform plans. But in the view of most observers, Dodd’s proposals would go much further in establishing a fundamentally new regulatory structure and in imposing tighter controls on financial institutions, investment instruments and trading practices — particularly for derivatives.
In a statement released by the Senate Banking Committee, and at his press conference, Dodd marked his determination to succeed with this major regulatory overhaul:
“I will not stand for attempts to protect a broken status quo, particularly when those attempts are made by some of the same special interests who caused this mess in the first place.”
“The American people have been through a lot over the past year. I hear from them every day. They are business owners forced to shutter their doors and lay off workers because their credit dried up. They are senior citizens who have delayed their retirement because their 401(k) vanished. They are ordinary Americans who did nothing wrong, but are paying a steep price. They deserve an economy in which Americans can find jobs, manage their money, and build better futures for their families. They deserve the real and meaningful change in this bill.”
Discussing two of the most critical components of his plan, Dodd continued:
“Our plan will stop abusive practices by creating an independent Consumer Financial Protection Agency with one mission: standing up for consumers. Whether taking out a mortgage, getting a credit card, or investing for retirement, Americans deserve to receive clear and accurate information, to be protected from hidden fees and abusive terms, and to know that the financial products they’re being offered are safe.”
“We will end “too big to fail.” We cannot allow the collapse of a few firms to threaten our entire economy. Our plan will create an independent council of regulators to identify risks, so that government can act to prevent a crisis. We will have a mechanism in place to safely shut down large failing companies without destabilizing the financial system. No longer will the Federal Reserve’s emergency lending authority be used to prop up a failed institution.”
Other key provisions would create a single federal banking regulator; eliminate regulatory gaps for over-the-counter derivatives, hedge funds, asset-backed securities, and payday lending; require companies that sell mortgage-backed securities to keep “skin in the game” so investors won’t be sold worthless securities; and give shareholders a greater say in how executives are compensated.
Not surprisingly, the two biggest defenders of the financial status quo are not at all happy with Dodd’s regulatory reform plan. The American Bankers Association immediately attacked the Dodd plan saying it “would tear apart the existing regulatory structure only to create a new one”. And the U.S. Chamber of Commerce has launched an effort to kill the proposed Consumer Financial Protection Agency (CFPA). These and other powerful special interests and financial industry lobbyists will no doubt be working feverishly to kill Dodd’s reform plan outright, or slice and dice it until its substantative provisions are eliminated or fundamentally weakened.
Tags: CFPA, Chris Dodd, Consumer Financial Protection Agency, financial reform, financial regulation, financial regulatory reform, too big to fail
