Yesterday, the Senate Banking Committee approved Chairman Chris Dodd’s (D-CT) financial regulatory reform legislation on a 13-10 party-line vote. Republicans had originally planned to offer hundreds of amendments to the legislation, including dozens of frivolous ones to change the legislation’s implementation date. However, they decided to hold off at the committee markup (leading to the markup lasting for all of 21 minutes), and instead propose their amendments when the bill is before the full Senate.
As I noted yesterday, many of the amendments that the GOP proposed aimed to weaken Dodd’s attempt to rein in banks that are “too big to fail.” Republicans do not want to place stricter capital standards on the biggest banks, do not want large non-banks (like AIG) to be regulated, and do not want to force the largest banks to pay into a resolution authority fund that will be tapped in case one of them fails.
But protecting the biggest banks from more stringent regulation isn’t the easiest position to sell, so Republicans are publicly insisting that Dodd’s bill doesn’t do an adequate job ending “too big to fail.” For instance, Sen. Richard Shelby (R-AL) said that the bill “still falls short of ending bailouts and associated moral hazards.” Sen. David Vitter (R-LA) added that it “still enshrines ‘Too Big To Fail,’ doesn’t replace it.” Sen. Judd Gregg (R-NH) appeared on MSNBC today to claim that “this bill unfortunately, sort of preserves ‘too big to fail.’”
But Shelby, Vitter, and Gregg might want to check in with Sen. Bob Corker (R-TN), who was leading Republican negotiations on regulatory reform for a time. Corker told the Huffington Post’s Ryan Grim and Shahien Nasiripour that Dodd’s bill does, in fact, go after “too big to fail”:
Corker, told by HuffPost of Vitter’s concern, said he agreed that there is “some tightening up that needs to take place.” But in general, he said, the bill does not enshrine “Too Big To Fail.” “In general, the concept there is good,” he said. Dodd’s bill would force failing banks into bankruptcy and liquidation. “Overall, I agree generally speaking with what’s been laid out.”
Of course, there are ways in which Dodd’s bill can be improved. I’d like to see the pre-paid resolution fund increased to the level that the House agreed to last year ($150 billion), instead of Dodd’s $50 billion. But Dodd has laid out a process in which a failing firm goes into bankruptcy unless it is too entangled within the financial system, at which point it goes into an FDIC resolution, using money put up by the financial industry itself. The bill also places stricter standards on the very biggest banks, as a disincentive to reaching that size. To claim otherwise is simply to follow GOP pollster Frank Luntz’s advice: characterizing regulatory reform as inevitably leading to “bailouts,” regardless of what the legislation actually says.