Break Up The "Too Big To Fail" Banks

So say Sens. Sherrod Brown (D-OH), Bob Casey (D-PA), Ted Kaufman (D-DE) and Sheldon Whitehouse (D-RI):

Sens. Sherrod Brown, Ted Kaufman, Robert Casey and Sheldon Whitehouse are introducing a new financial-reform bill, the Safe Banking Act of 2010, to limit the size of the banks -- and, in the process, break up existing firms.

[. . .] The bill's central points:

* Imposing a strict 10 percent cap on any bank-holding-company’s share of the United States’ total insured deposits
* Reducing the maximum amount of non-deposit liabilities at financial institutions (to 2 percent of United States GDP for banks, and 3 percent of GDP for non-bank institutions)
* Setting into law a 6 percent leverage limit for bank-holding companies and selected non-bank financial institutions

These steps would require several of the largest banks to, in effect, break themselves up to come in under the limits that this law would create.

I fully endorse this proposal. It is precisely what is needed.

Speaking for me only

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    I remember, back in the day, (5.00 / 1) (#4)
    by sarcastic unnamed one on Wed Apr 21, 2010 at 03:12:29 PM EST
    when banks could only be in one state. For example, Bank of America was then the Bank of California, iirc.

    Then, in the face of massive, foreign (and often state-owned) competition, intra-state banking (or some such) was approved such that our banks could be big enough to compete with these massive foreign competitors.

    Is there no good reason for US banks to be big?

    Yes, I remember those (5.00 / 1) (#14)
    by brodie on Wed Apr 21, 2010 at 04:12:01 PM EST
    days, too.  No interstate banking.  

    But, contra the reasons you cite, I believe the massive changes in banking laws had more to do with the deregulation/laissez-faire capitalism political fervor of the time (1980s).

    Bank of America was then the Bank of California

    Not so.  Two separate banking institutions.  B of A started as Bank of Italy in S.F. in the early 20th C.  Bank of California started even earlier, mid-19th C, in S.F.  B of C merged with another bank recently and goes by another name (Union Bk of Calif).


    Ah yes, Bank of Italy. I remember now. (none / 0) (#16)
    by sarcastic unnamed one on Wed Apr 21, 2010 at 04:16:13 PM EST

    Regarding the former point, I was a college business student at the time, and I'm pretty sure big foreign bank competition (primarily, iirc, from Japanese banks) was a big reason for allowing US banks to get so much bigger via interstate banking.

    Ah well, all that matter now is if there are good reasons to want big banks.


    There are many reasons (none / 0) (#5)
    by Spamlet on Wed Apr 21, 2010 at 03:14:16 PM EST
    for banks to be, as they say, too big to fail. The proposed legislation addresses that problem.

    that was not in the linked article.

    In what way does the proposed legislation address that problem?


    As BTD points out, (none / 0) (#8)
    by Spamlet on Wed Apr 21, 2010 at 03:28:31 PM EST
    These steps would require several of the largest banks to, in effect, break themselves up to come in under the limits that this law would create.

    That is also the approach cogently laid out and advocated by Simon Johnson and James Kwak in their new book 13 Bankers (link in my comment above).


    ie., making them smaller, will solve the problem of competition from massive foreign banks.

    does this legislation apply to them as well? (5.00 / 2) (#17)
    by CST on Wed Apr 21, 2010 at 04:22:41 PM EST
    it would make sense to me that it should not have to do with who owns the bank but rather where they do business. So to do business here you have to follow our rules.  Not sure if that is in here or not, but it would make sense.

    Also, it's not like this legislation is requiring them to be "small".  Just not gi-normous.


    Right, (none / 0) (#22)
    by sarcastic unnamed one on Wed Apr 21, 2010 at 04:41:31 PM EST
    I don't know what the definition of "too small" is.

    Competition for what, exactly? (none / 0) (#18)
    by Spamlet on Wed Apr 21, 2010 at 04:24:20 PM EST
    I don't understand how breaking US banks up . . . will solve the problem of competition from massive foreign banks.

    Competition for toxic assets?

    For the fallout from exotic radioactive derivatives?

    For bailouts from U.S. taxpayers when the too-big-too-fail US banks blow up the whole casino and take the foreign banks down with them (see Goldman Sachs's reaming of Deutsche Bank)?


    Well, I guess that is the question. (none / 0) (#21)
    by sarcastic unnamed one on Wed Apr 21, 2010 at 04:37:59 PM EST
    Is smaller US banks a problem? I don't know the answer...

    And... (none / 0) (#26)
    by NYShooter on Wed Apr 21, 2010 at 07:29:39 PM EST
    They will still be able to play in their casinos


    As private companies......

    With their own money.

    Just as they did Before....

    Washington lost it's mind.


    The reasons that big banks are good: (none / 0) (#10)
    by me only on Wed Apr 21, 2010 at 03:53:01 PM EST

    a) Helpful for consumers when they move to keep the same banking

    b) Helpful for travelers to have easy access to banking in several states

    c) ability to finance very large projects.  Your local credit union cannot finance $5 billion projects.

    d) much easier for big banks to lobby for government bailouts.


    For those unable to detect snark (none / 0) (#11)
    by me only on Wed Apr 21, 2010 at 03:53:25 PM EST
    d was snark.

    And a good one! (none / 0) (#15)
    by sarcastic unnamed one on Wed Apr 21, 2010 at 04:12:01 PM EST
    Number one is (none / 0) (#29)
    by gyrfalcon on Wed Apr 21, 2010 at 11:15:33 PM EST
    actually true. Not that it's anywhere near a good enough reason, but when I got fed up with my local bank and its attitude problem and wanted to take my only mildly complicated business out NOW, YESTERDAY,  I picked a large bank with presence in many states because I knew I was going to be moving out of state in a matter of months.

    A minor thing (none / 0) (#32)
    by Raskolnikov on Thu Apr 22, 2010 at 02:55:52 AM EST
    But ATM fees are another good reason.  With banks charging $2.50 for competitors ATMs and the private ATM machines charging their own fees, taking $20 out can end up costing $24.  Personally this doesn't bother me as I rarely use cash, and if I do just get cash-back to avoid the fees, but it can be helpful for some.

    Easy to avoid (none / 0) (#33)
    by gyrfalcon on Thu Apr 22, 2010 at 08:56:53 AM EST
    Free cash back at supermarkets.

    Don't get me wrong, I hate those ATM fees.  But the nearest branch of my bank to where I live now is 15 miles away and in four years, I've only had to pay an ATM fee for cash somewhere else once.

    Also, I remember the days when if you needed cash money, you had to get it out of your own bank at the teller before 3 PM on a weekday.  No spontaneous weekend getaways in those days unless you had your spontaneous idea before 3:00 PM on a Friday.

    When supermarkets started letting you cash a check for $25, it was a HUGE DEAL.


    but you know (none / 0) (#23)
    by Ga6thDem on Wed Apr 21, 2010 at 05:24:25 PM EST
    it's not all bad that there is some intrastate banking. Back in the 80's I lived in SC and when I went to Atlanta I couldnt get any money because of that system. Each bank had to separately incoporate in each state even it had the same name such as Citizens & southern.

    And they rapidly (none / 0) (#28)
    by gyrfalcon on Wed Apr 21, 2010 at 11:12:20 PM EST
    gobbled up huge numbers of other banks to do it.

    I remember they kept having to rename the new "Boston Garden" as each owner bank kept getting swallowed by an even larger one.


    i love it! (5.00 / 4) (#12)
    by TomStewart on Wed Apr 21, 2010 at 04:00:03 PM EST
    It'll never pass.

    I worry about returning to (5.00 / 2) (#19)
    by andgarden on Wed Apr 21, 2010 at 04:31:14 PM EST
    regional monopolies. Cable companies are similarly irritating in that respect.

    People concerned here about (5.00 / 3) (#20)
    by Spamlet on Wed Apr 21, 2010 at 04:36:54 PM EST
    regional banking monopolies and competition from "massive" foreign banks are raising valid issues but perhaps losing the distinction between socially productive banking and socially destructive finance. They are not the same thing, and the proposed legislation addresses the latter.

    Bingo (none / 0) (#30)
    by gyrfalcon on Wed Apr 21, 2010 at 11:17:11 PM EST
    I'm all for breaking them (none / 0) (#1)
    by Ga6thDem on Wed Apr 21, 2010 at 02:55:09 PM EST
     up too. Anyway at least some good ideas are coming out of the senate because they aren't coming out of other quarters in washington.

    Between This (5.00 / 1) (#7)
    by The Maven on Wed Apr 21, 2010 at 03:22:24 PM EST
    (which shouldn't have been at all surprising given Sen. Kaufman's March 11 statement) and Sen. Lincoln's derivatives bill (amendment?) that got voted out of committee today, it looks as though Sen. Dodd, the White House and Rep. Frank are all being lapped by senators who seem to have their fingers on the pulse of the body politic.  If anything is to stanch voter disillusionment with the Dems for November, this will be it.  For once, let's hope that we can get enough out in front of this issue to portray the Party of No as the defenders of the Wall Street banksters, opposing the interests of the American people.  Heck, even Chuck Grassley is aware of the steamroller potential here, and that's got to be a sign of something.

    Too bad it's taken all this time to get on the ball here -- a year ago, we likely could have achieved even stronger reform and then parlayed that momentum into all sorts of other good legislation (e.g., a better health care bill).  Oh, well.


    The advantage to (5.00 / 1) (#24)
    by Ga6thDem on Wed Apr 21, 2010 at 05:25:42 PM EST
    having a push over for President is that he'll sign this legislation if it gets that far. Hopefully it will.

    Deft (none / 0) (#2)
    by Spamlet on Wed Apr 21, 2010 at 02:57:06 PM EST
    and just what Simon Johnson and James Kwak are advocating.

    Yay! (none / 0) (#3)
    by squeaky on Wed Apr 21, 2010 at 02:57:07 PM EST
    Enough of these bloated giants already..  hope it works..

    Seems to me the big banks... (none / 0) (#9)
    by kdog on Wed Apr 21, 2010 at 03:48:55 PM EST
    broke themselves up, then we decided to put 'em back together.

    But whats done is done...and I don't wanna see TARP 2.0 in 7 years.  

    When we're done with this, can we start breaking up our "too big to fail" federal government monstrosity?  I'm a firm believer in bigger is not better...for private corporations and their sister public corporation, Uncle Sam Inc.

    but wait! (none / 0) (#25)
    by cpinva on Wed Apr 21, 2010 at 06:30:29 PM EST
    this will stifle the "creative" free market for newer and better "financial products"! ok, so only two or three people actually understand these products, and they seem to only benefit those same people, while wiping out the investments of 1'000's, but still...................

    bear in mind, there will still be some scumwad who will (supposedly) figure out a way to skirt any new rules, or enhanced enforcement of even current rules and regulations. there always is.

    is this going to require (none / 0) (#27)
    by TimNCGuy on Wed Apr 21, 2010 at 08:48:31 PM EST
    that commercial banks and investment houses be separated again?  That way investment houses can go belly-up without destroying the commercial banks and their lending?

    Karl Rove sez (none / 0) (#31)
    by gyrfalcon on Wed Apr 21, 2010 at 11:22:22 PM EST
    financial regulatory reform is a loser for Dems politically.  Why?  Because.... Greg Craig went to work for Goldman, and Tom Daschle and Dick Gephardt (who?) did too, at some point in the past.  Also, the Dodd bill includes "bail-outs"!!!  Even if they aren't taxpayer bail-outs, sez Rove, the public will see right through it as something provided for Wall Street that isn't provided for Main Street.

    And as for derivatives regulation?  Rove sez it's terrible because it's not just Wall Street derivatives that'll be burdened down with regulation, but also "Main Street"!!  Who on Main Street, you may ask, is he referring to?  Why, Alcoa, Boeing, Southwest Airlines.  You know, Main Street, right?

    Whew!  Such genius!  Such wishful thinking!

    Here Here!!! (none / 0) (#34)
    by Slado on Thu Apr 22, 2010 at 05:02:41 PM EST
    If repubs where smart (questionable at best) they would join these D's and call for the same.

    The problem with our financial system is crony capitalism and that's harder to do when there are more banks fighting for the same resources.

    It's a two fold problem.   To fund our debt we are cranking out the money and the big banks keep getting bigger as they cozy up to Washington and make hey with all the money pouring into Wall Street.

    Financial regulation should start with breaking up the banks that caused the problems but the lobbyists and people on the staffs of senators and the presidents don't want it.