During a Senate Banking Committee hearing, U.S. Sen. Sherrod Brown (D-OH) pressed regulators on efforts to end "Too Big to Fail" policies that put our economy at risk. Brown urged Federal Reserve Governor Daniel K. Tarullo for his support in placing sensible size and leverage limits on Wall Street megabanks, a concept that is gaining broad bipartisan support, most recently, from the Washington Post's George Will.
"Wall Street megabanks cannot be allowed to take the same kind of risks that hurt so many of our nation's families and small businesses," Brown said. "Support is building for ending these "too big to fail' policies that brought our economy to the brink. Now is the time to act."
Brown, who chairs the Senate Banking Subcommittee on Financial Institutions and Consumer Protection, is the author of the Safe, Accountable, Fair & Efficient (SAFE) Banking Act, legislation that would prevent any one financial institution from becoming so large and overleveraged that its collapse could put our economy on the brink of collapse or trigger the need for a federal bailout.
Last month, Brown and U.S. Sen. Chuck Grassley (R-IA) sent a letter to U.S. Attorney General Eric Holder questioning whether the "too big to fail" status of certain Wall Street megabanks undermines the ability of the federal government to prosecute wrongdoing and impose appropriate penalties. He also passed legislation with Sen. David Vitter (R-LA) to requiring the Government Accountability Office to study how banks with assets of $500 billion or more benefit from the belief that the government would not let them fail in a crisis.
Specifically, the SAFE Banking Act would:
Imposes a strict 10 percent cap on any bank's share of the total amount of deposits of all insured banks in the U.S. This would eliminate loopholes in the existing statutory cap.
Imposes a strict 10 percent cap on the liabilities that any one financial company can take on, relative to the U.S. financial sector. Like the deposit concentration limit, this closes loopholes in existing law.
Imposes a limit on the non-deposit liabilities (including off-balance-sheet (OBS) exposure) of a bank holding company of 2 percent of GDP. No bank holding company could exceed $1.3 trillion.
Imposes a limit on the non-deposit liabilities (including OBS exposure) of any non-bank financial institution of 3 percent of GDP. No non-bank financial company could grow larger than $436 billion.
Codifies a 10 percent leverage limit (including OBS exposure) for large bank holding companies and selected nonbank financial institutions into law.