April 01, 2013
End in Sight for Too Big to Fail?
by Robert Kropp
Senators Sherrod Brown and Bernie Sanders each pursue legislative initiatives to end the economic
advantages of the nation's largest banks and force them to break up.
The six largest banks in the US—Bank of America, JP Morgan Chase, Citigroup, Wells Fargo, Goldman
Sachs, and Morgan Stanley—now control assets equal to almost two-thirds of the nations entire Gross
Domestic Product (GDP). The competitive advantages of their size include advantageous rates when
they borrow money, since the widespread perception is that taxpayers will again step in to bail
them out should their risky activities land them at the brink of failure.
situation with the banks has gotten so out of hand that no less than the top law enforcement
official in the US—Attorney General Eric Holder—recently stated, "I am concerned that the size of
some of these institutions becomes so large that it does become difficult for us to prosecute them
when we are hit with indications that if we do prosecute—if we do bring a criminal charge—it will
have a negative impact on the national economy, perhaps even the world economy."
deliberations leading to passage by Congress of the Dodd-Frank financial reform bill in 2010,
Senator Sherrod Brown of Ohio introduced the Safe, Accountable, Fair & Efficient (SAFE) Banking
Act, which would have limited the size of banks. It was opposed by the Obama administration and was
defeated by a 61 to 33 vote.
The Dodd-Frank bill did include a version of the so-called
Volcker Rule, which places restrictions on proprietary trading by banks as well as investment by
them in private equity firms and hedge funds. However, nearly three years after passage of the
bill, federal regulators have yet to enact it, and the biggest banks show no sign of shrinking or
giving up the risky practice of proprietary trading.
Outside the halls of Congress,
initiatives have been undertaken to address the problems of too big to fail. This year, Trillium Asset Management and the AFSCME
Employees Pension Plan filed a shareowner resolution with Citigroup, requesting that its board of
directors consider ways to break up the too-big-to-fail bank.
And last month, Occupy the SEC (OSEC) filed a lawsuit
against six federal regulators—the Federal Reserve, the SEC, the Commodity Futures Trading
Commission (CFTC), the Office of the Comptroller of the Currency (OCC), the Federal Deposit
Insurance Corporation (FDIC), and the US Treasury Department—requesting that the Court compel the
defendants to issue a final Volcker Rule.
"The longer the agencies delay in finalizing the
Rule, the longer that banks can continue to gamble with depositors' money and virtually
interest-free loans from the Federal Reserve's discount window," OSEC stated.
economy still suffering from the consequences of the fiscal crisis, and with wealth inequality
still increasing at alarming rates, Senator Brown is revisiting the question of too big to fail,
possibly perceiving that the makeup of the Senate has changed for the better since last year's
elections. Along with Senator David Vitter of Louisiana, Brown is introducing legislation that
would authorize the Government Accountability Office to estimate the economic benefits large banks
receive for being too big to fail.
A budget amendment introduced by the Senators would end
federal subsidies and funding advantages for megabanks larger than $500 billion.
Senator Bernie Sanders of Vermont stated recently, "I will soon introduce legislation that would
give the Treasury secretary 90 days to compile a list of commercial banks, investment banks, hedge
funds and insurance companies that the Treasury Department determines are too big to fail."
"Within one year after the legislation becomes law, the Treasury Department would be required
to break up those banks, insurance companies and other financial institutions identified by the
secretary," Sanders continued.