Ohio Sen. Sherrod Brown (D) and Louisiana Sen. David Vitter (R) Wednesday introduced legislation aimed at reining in “too big to fail” megabanks by imposing strict capital requirements and preventing them from structuring themselves to elude existing regulations.
The largest Wall Street banks are even bigger today than they were before the crisis, Brown noted in a floor speech in February when he renewed calls to break up large banks. In a new video explaining why he and Vitter introduced the legislation, Brown said the industry hasn’t learned its lesson from the crisis and that taxpayers shouldn’t be on the hook for banks’ risky practices again as they were when the financial system nearly collapsed in 2008:
BROWN: Did we learn our lesson after taxpayers had to bailout the megabanks in 2008? Well, since then, our banking industry has become even more — not less — consolidated. Ten large financial institutions merged into just four. These four behemoths are nearly $2 trillion dollars…larger than they were the last time we determined they were “too big to fail.” This growth didn’t come from innovative new products and services…it was built by the perception that these banks aren’t just backed by their investors, they’re also, unfortunately, backed by every American taxpayer.
The Brown-Vitter legislation would rein in banks by increasing capital standards — that is, the amount of money they have to keep on hand to manage the risk they take through investments and lending. The largest banks, those with more than $500 billion in assets, would be subject to a 15 percent capital requirement. That provision, which would apply to JP Morgan Chase, Citibank, and Bank of America, would force large banks to either hold more money to cover their risks or to reduce in size to avoid the capital requirements. Those standards are even stronger than the Basel III requirements sought by international regulators.
The legislation would also limit the taxpayer guarantee to traditional banking practices, leaving banks to rely on their own capital to insure the riskier practices in which they engage. That, Brown said, would prevent taxpayers from subsidizing the riskiest lending and trading practices that helped spark the financial crisis. “If megabanks want to be large and complex, that’s their choice,” Brown said. “But taxpayers shouldn’t have to subsidize their risk-taking.”