Thursday, April 22, 2010

Real Banking Reform

If this makes it into the Financial Regulations Bill, it would truly be a Big Fucking Deal:
In a conference call with reporters, Sens. Sherrod Brown (D-OH) and Ted Kaufman (D-DE) introduced a bill, The Safe Banking Act of 2010, which would mandate hard leverage and size caps on financial institutions and force the breakup of many of the largest mega-banks. The duo planned to introduce their legislation as an amendment to the financial reform bill expected next week.

The bill would place a cap on any financial institution, limiting their total assets to 3% of GDP (that would lower to 2% for banks, as opposed to 3% for non-bank institutions). Currently, the 6 largest banks have holdings that equal 63% of GDP. The Safe Banking Act would also impose a 10% cap on any bank holding company’s share of insured deposits. Bank holding companies and “selected nonbank financial institutions” would have a leverage limit of 6%, meaning that they would not be able to lend out more than around sixteen dollars for every dollar of capital in house.

In his opening statement, Brown said “If we’re going to prevent big banks from putting our entire economy at risk, we need to place sensible size limits on our nation’s behemoth banks. We need to ensure that if banks gamble, they have the resources to cover their losses.” Sen. Kaufman, who has been a hero on this issue for his strong stands against too big to fail, added that “this is exactly what we need,” because financial institutions don’t need this kind of size to compete internationally, and they just put the nation’s financial system needlessly at risk. He explained that we cannot leave the question of size and leverage caps to the regulators, because they already have the authority under existing statutes to institute these size and leverage caps, and they haven’t done it.
Unfortunately because it's so awesome, I have no doubt that it will be one of the first parts of the bill that people try to vote down/gut.

If Obama lends his support to this, anything is possible. As we saw in the health care debate, when he was willing to lobby for things, he largely got what he wanted.

He'll give a speech on reform later today, so maybe we'll get a few more clues then.

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