Today, debate on Sen. Chris Dodd’s (D-CT) financial regulatory reform bill resumed in the Senate, with votes on amendments scheduled to begin tomorrow. The first amendment on the docket comes from Sen. Barbara Boxer (D-CA) and strictly stipulates that taxpayer funds can not be used to prop up a failed financial firm (which really just reinforces the resolution authority already in the bill).
Republicans used their time on the floor today to disparage the bill, in a preview of the rhetoric we can expect when debate over more contentious amendments comes around. Sen. Jim “tough sh*t” Bunning (R-KY) was no exception, as he employed the oft-repeated, but false, conservative meme that the bill preserves and institutionalizes bailouts. But Bunning then said that the bill should place “hard limits on the size of financial companies” and that banks in excess of the cap “must be forced to shrink”:
Decades of combinations have allowed a handful of banks to dominate the financial landscape. The four largest financial companies have assets totaling over 50 percent of our annual gross domestic product…I would rather take away the taxpayer protection for creditors of large firms and let the market determine their size. But if that is not going to happen, we should place hard limits on the size of financial companies and limit the activity of banks with insured deposits. Any financial company that are over those size limits must be forced to shrink. This will lead to a more competitive banking sector, reduce the influence of the largest firms, and prevent a handful of them from holding our economy and our government hostage ever again.
With his rhetoric, Bunning sounds a lot like Kansas City Federal Reserve President Tom Hoenig, who has said “I think [the biggest banks] should be broken up…And in doing so, I think you’ll make the financial system itself more stable. I think you will make it more competitive, and I think you will have long-run benefits over our current system.”
Bunning is correct that, as currently written, the bill does not place hard caps on the size of financial institutions (and, in fact, does not lay out capital requirements for the biggest banks either). But Bunning has the opportunity to rectify that, by supporting an amendment proposed by Sens. Sherrod Brown (D-OH) and Ted Kaufman (D-DE) that would impose a cap of 10 percent on a bank’s share of national deposits, limit non-deposit liabilities to 2 or 3 percent of GDP, and set a six percent leverage limit for bank holding companies and systemically risky non-banks.
To his credit, last month Bunning voted in the Senate Banking Committee for an amendment proposed by Sen. Bernie Sanders (I-VT) that would have broken up large financial firms. His stance contrasted with that of some of his Republican colleagues, who had paid lip service to breaking up banks, then voted against the Sanders amendment. So will Bunning continue to support breaking up big banks by voting for Brown-Kaufman? And since he also expressed a desire to “limit the activity” of banks with federally insured deposits, will he be supporting the Volcker rule? We’ll know once the debate gets rolling this week.