U.S. Senator David Vitter (R-La.) today asked U.S. Federal Reserve Chairman Ben Bernanke at a Senate Banking Committee Hearing about the need to increase capital requirements for megabanks, repeating Bernake's previous statements of support for the proposal.
"Placing higher capital requirements on megabanks is a common sense way to fix the dangers of too-big-too-fail, and Chairman Bernanke has even said this would make our financial system safer with limited impact on the economy," said Vitter. "The megabanks should bear their own risks so that taxpayers won't get hung out to dry with another Wall Street bailout."
Vitter believes that greater capital is essential to withstand inevitable bank losses. In the 1920s and 1930s, the big New York banks held far more capital than they do today, which enabled them to survive the Great Depression. Vitter argued that capital at the "megabanks" gets depleted by trading losses or loans going bad, which puts taxpayers at risk by the "too big to fail" banks.
In May, Allan Meltzer, an economist and Federal Reserve historian wrote an op-ed applauding Vitter's efforts to increase capital requirements for big banks.