Senate Bill Would Break-Up TBTF Banks

“If an institution is too big to fail, it is too big to exist. We should break them up so they are no longer in a position to bring down the entire economy.”

-Senator Bernie Sanders, (I, Vt)

“It’s the natural action of capital to grow and exceed. Now we’re going to contain it.” -Representative Paul Kanjorski

Everyone this weekend was so busy watching the Health care bill, that they might have overlooked the most important financial reform legislation since the Commodities Future Modernization Act: A bill is gaining ground in Congress that would “break-up” big banks.

Independent U.S. senator Bernie Sanders has introduced the Volcker Plan. It gives the government the power to identify and break up financial firms that are “too big to fail.”

“In the aftermath of the worst financial crisis in decades, nations are trying to determine what to do about banks and financial firms that are so large that their failure could threaten the stability of the global financial system.

The goal is to prevent another debacle like last year’s when Lehman Brothers collapsed, triggering a credit crisis and huge taxpayer bailouts of AIG (AIG.N), Citigroup (C.N), Bank of America (BAC.N) and others . . .

Another approach, which Sanders and others back, would be to prevent the firms from getting so big in the first place. Sanders’ legislation would give Treasury Secretary Timothy Geithner 90 days to list commercial banks, investment banks, hedge funds and insurers that he deems too big to fail.

The bill defines that as “any entity that has grown so large that its failure would have a catastrophic effect on the stability of either the financial system or the United States economy without substantial government assistance.” It would give a new government systemic risk council break-up power, with clearance from the president.

Larger banks are expected lobby aggressively against it — but mid-sized and smaller financial institutions might be supportive. The bailouts have created an oligopoly, which makes it challenging for the smaller banks to market themselves.

The regional banks — the ones that are not TBTF — could find a more level playing field in which they could better compete in the market place, if this bill becomes law. Currently, they are at an enormous disadvantage versus the government subsidized giants . . .

Sources:

A BILL To address the concept of ‘‘Too Big To Fail’’ with respect to certain financial entities. http://sanders.senate.gov/files/AYO09C99.pdf

TOO BIG TO FAIL – TOO BIG TO EXIST November 6, 2009 http://sanders.senate.gov/newsroom/news/?id=b8b8fce1-60b9-4a4b-9bd8-a774761b2182

Big bank “break-up” idea gains ground in Congress Kevin Drawbaugh Reuters, Nov 6, 2009 http://www.reuters.com/article/BROKER/idUSN0618960720091106

111THCONGRESS 1STSESSION

To address the concept of ‘‘Too Big To Fail’’ with respect to certain financial entities.

IN THE SENATE OF THE UNITED STATES Mr. SANDERS introduced the following bill; which was read twice and referred to the Committee on A BILL

To address the concept of ‘‘Too Big To Fail’’ with respect to certain financial entities.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE. This Act may be cited as the ‘‘Too Big to Fail, Too Big to Exist Act’’.

SEC. 2. REPORT TO CONGRESS ON INSTITUTIONS THAT ARE TOO BIG TO FAIL. Notwithstanding any other provision of law, not later than 90 days after the date of enactment of this Act, the Secretary of the Treasury shall submit to Congress a list of all commercial banks, investment banks, hedge funds, and insurance companies that the Secretary believes are too big to fail (in this Act referred to as the ‘‘Too Big to Fail List’’).

SEC. 3. BREAKING-UP TOO BIG TO FAIL INSTITUTIONS. Notwithstanding any other provision of law, beginning 1 year after the date of enactment of this Act, the Secretary of the Treasury shall break up entities included on the Too Big To Fail List, so that their failure would no longer cause a catastrophic effect on the United States or global economy without a taxpayer bailout.

SEC. 4. DEFINITION. For purposes of this Act, the term ‘‘Too Big to Fail’’ means any entity that has grown so large that its failure would have a catastrophic effect on the stability of either the financial system or the United States economy without substantial Government assistance.


Originally published at The Big Picture and reproduced here with the author’s permission.
 
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4 Responses to "Senate Bill Would Break-Up TBTF Banks"

  1. Chignos   November 10, 2009 at 9:41 pm

    The worst offender on the TBTF category is the United States Government.How the hell can anyone have faith that the government (Timmy Geitner no less?????) should determine who is TBTF?American nitwits who have continually looked to a central government to improve society can/will keep banging their heads against this ideological wall out of stubborn pride no matter how big the headache, irrespective of repeated seizures, despite the inevitable lobotomy.

    • 11b40   November 15, 2009 at 12:00 pm

      So, are you for or against beaking up the TBTF financial institutions? How about just bringing back Glass-Stegall? Get the banks back to traditional banking functions, and let the casino operators on Wall St gamble with no government subsidies or guarantees.How much you like or don’t like government, you are stuck with it.Independent Contractor

  2. Anonymous   November 13, 2009 at 8:41 am

    here, here! I couldn’t agree with Chignos comment more. It’s all just more control for a TARP that was passed to buy up toxic debt then “changed” and used to bail out government symbiotically cloned big business including government motors. it is all the way of Japan and we are all screwed….no more reserve currency, no more superpower, no more of anything except the poor dumb serfs who get to bail out all the “developing nations”. Great way to go for Soros, Brezinski, Rockefellers and the rest of the elite, fantastic for GS and Morgan….bad for America, bad for Americans and most certainly bad for the economy. Just like healthcare reform will morph into the policymakers dream, big government owns us now America. Either get used to becoming a bananna republic or fight back with all you have and hope to God we can fix it all in the next election – with businessmen running the show, not lawyers! I feel so unrepresented…..

  3. Barney   November 14, 2009 at 12:42 am

    To Chignos and Anonymous.Yeah, leave it to business to fix things. Just as they did with the creation of the subprime mortgages which were bundled into Collateralized Debt Obligations and sold to investors after they persuaded (bribed???) AIG to furnish insurance protection (Credit Default Swaps); thus passing default risk to the insurer. Then we must not forget how these same “business men” persuaded (or more bribes) bond rating agencies to give certain slices of the CDOs low risk (AAA) or medium risk (BBB) ratings. Also, not to long ago their was White Collar Crime involved with the scandals of Enron and Author Anderson, and that of Adelphia, Cisco, Global Crossing, Imclone, Tyco, and WorldCom. YES, just what is needed is more such upstanding business men to run the country. NOT