A little over two years ago, President Obama signed the Dodd-Frank bill that promised to end taxpayer-funded bailouts, particularly related to the big Wall Street banks. Supporters of this legislation argued that government regulators needed more authority to deal with the largest financial firms. But instead, Dodd-Frank actually institutionalized the too-big-to-fail culture as it still prevails today from Wall Street to Washington. And without serious financial reform, there is no end in sight.
Last week, I wrote an editorial in The Wall Street Journal that outlines the type of systematic reforms we need to really put an end to bailout mania. We need to reform the core structure of the financial system, and we should start by increasing the required amount of capital the megabanks must keep on their books.
This is not complicated finance. If a huge bank wants to provide loans and investments for billions of dollars, then they should be required to keep a certain amount of reserves on hand to absorb any rapid or sudden market turns. They certainly shouldn't empty their bank vaults, fail and then turn to the U.S. government for a bailout because they didn't keep some emergency savings. Louisiana families certainly have to keep emergency savings -- why shouldn't these megabanks?
That's why I'm arguing for higher capital requirements for megabanks, instead of the over-regulation brought by the Dodd-Frank law. This will make sure the megabanks are either far better able to weather the next crisis without a bailout, or it will create incentives for them to spin off parts of their business into separate entities to handle large business clients.
These sorts of more fundamental reforms will allow us to simultaneously lessen the need for and crushing burden of hyper-detailed, unclear or conflicting over-regulation. This is essential to ensure a healthy financial sector, a newly revived economy, and the survival of the valuable, unique tradition of community and regional banks in America.
We still need to address the problems created by Dodd-Frank and permanently end the current too-big-to-fail culture in Washington and on Wall Street. I am interested in hearing your thoughts on these issues and the other issues most important to you. Please contact me with your ideas at any of my state offices or in my Washington office. You can also reach me online at http://www.vitter.senate.gov/public/.