Sens. David Vitter (R-La.) and Sherrod Brown (D-Ohio) introduced legislation last week that would prevent a single financial institution from becoming so large that its size could pose a risk to taxpayers and the U.S. financial system.
“Many Ohioans would be shocked to find out that the same Wall Street megabanks which received bailouts from taxpayers five years ago…continue to receive taxpayer-funded advantages today simply because of their ‘too big to fail’ status,” Brown said. “And while these megabanks receive an implied federal guarantee provided by taxpayers at no charge, ‘too small to save’ community banks in towns across Ohio have been allowed to fail. This taxpayer-supplied subsidy is wrong, and it puts community banks in Ohio, and across the nation, at a competitive disadvantage.”
The legislation, known as the Terminating Bailouts for Taxpayer Fairness Act, would ensure banks have enough equity to back risky practices, thereby eliminating the risk for a taxpayer-funded bailout.
The lawmakers’ bill would also limit the assistance provided by the Federal Reserve and FDIC to traditional banking operations.
“If megabanks want to be large and complex, that’s their choice—but we don’t have to subsidize their risk-taking,” Brown said. “If they fail, their executives and investors—not taxpayers—should pay the price.”
The bill would also implement measures intended to reduce the regulatory burden on community banks.
“We shouldn’t wait for another economic crisis before we take action,” Brown said. “We owe it to Ohio families—and families across the country—to guarantee that Wall Street megabanks will never again gamble away the American dream.”