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Sens. Brown, Vitter developing legislation to end “too big to fail”

Sherrod Brown

Sherrod Brown

Sen. Sherrod Brown (D-Ohio), the co-author of the failed Brown-Kauffman amendment to break up big banks, is working with Sen. David Vitter (R-La.) on a new bill to end “too big to fail.”

The legislation, referred to as the SAFE Banking Act, would limit the amount of debt a single financial institution could take on relative to GDP. No financial institution would be able to hold non-deposit liabilities in excess of two percent of GDP, and investment banks would be prohibited from holding non-deposit liabilities exceeding three percent of GDP. The bill would affect the largest six U.S. banks, which would have three years to comply with the law, according to The Washington Post.

Brown said that the biggest banks would be “reduced from their current size of about 64 percent of U.S. GDP to about 34 percent of GDP, as they were in 2001,” adding that their funding “would come from more stable sources, with about $3 of deposits for every $1 in volatile non-deposit funding,” The Washington Post reports.

Many bank executives have opposed breaking up the largest banks, saying that doing so would put U.S. banks at a competitive disadvantage, because big banks provide financial services that smaller institutions cannot.

Brown said, however, that he is not proposing limiting the size of all banks to $500 million or less in assets.

“As a result of my legislation, $2-trillion megabanks would be about $1.2 trillion,” Brown said, according to The Washington Post. “I have yet to hear why 20 super-regional banks couldn’t do a better job than 11 megabanks that benefit from implicit guarantees from the federal government.”

Brown’s previous amendment failed to garner enough support to pass during Dodd-Frank discussions, but he said that some congressmen that voted against the measure the last time “have told [him] that they would vote with [him] today.”

“People are reconsidering their stance for two reasons,” Brown said, The Washington Post reports. “They see that Wall Street megabanks are too big to manage and too complex to regulate. Scandals…have shown that these megabanks are out of control…And senators are hearing calls to limit the size and risk of Wall Street banks from some surprising places. When regulators like [Fed Governor] Dan Tarullo, [Dallas Fed CEO and President] Richard Fisher and [FDIC Director] Tom Hoenig and conservative thought leaders like John Huntsman, George Will, Peggy Noonan and…Vitter speak out about this issue, senators sit up and take notice.”

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