Sen. Bernie Sanders (I-Vt.) introduced legislation on Tuesday to break up “too big to jail” banks that have grown so large the U.S. Justice Department has been wary about prosecuting them for fear of destabilizing the financial system.
America’s 10 largest banks are larger than before the 2008 taxpayer-funded bailout, when the Federal Reserve provided financial institutions with $16 trillion in near zero-interest loans and Congress approved $700 billion in support for “too big to fail” institutions.
U.S. Attorney General Eric Holder Jr. said the Justice Department will likely not pursue cases against the big banks because filing charges may “have a negative impact on the national economy, perhaps even the world economy.”
“We have a situation now where Wall Street banks are not only too big to fail, they are too big to jail,” Sanders said. “That is unacceptable and that has got to change because America is based on a system of law and justice.”
Rep. Brad Sherman (D-Calif.) has proposed a companion bill in the House of Representatives.
“Never again should a financial institution be able to demand a federal bailout,” Sherman said. “They claim: ‘if we go down, the economy is going down with us,’ but by breaking up these institutions long before they face a crisis, we ensure a healthy financial system where medium sized institutions can compete in the free market.”
The legislation would give the U.S. Treasury Secretary Jack Lew 90 days to make a list of institutions whose “failure would have a catastrophic effect on the stability of either the financial system of the U.S. economy without substantial government assistance.” The Treasury would then have one year to break up the institutions.
The six largest American financial institutions have assets of nearly $9.6 trillion, or about two-thirds of the nation’s GDP, and the institutions issue more than two-thirds of all credit cards, hold more than 40 percent of all U.S. deposits, more than half of all mortgages and control 95 percent of all derivatives.
“In my view, no single financial institution should have holdings so extensive that its failure could send the world economy into crisis,” Sanders said. “At the very least, no institution, no CEO in America should be above the law. If an institution is too big to fail, it is too big to exist.”