Congressman Miller Introduces Bill Breaking Up Big Banks

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A friend on the Hill sent me the following internal letter being sent around the House to gather cosponsors.

Too Big to Fail is Too Big to Regulate

Cosponsor H.R. 5159 – The Safe, Accountable, Fair and Efficient Banking Act of 2010

April 29, 2010

Dear Colleague:

We’re
writing to invite you to join us as cosponsors of legislation to
restrict the leverage and size of the very largest banks and financial
institutions in the United States.

The
resolution powers in the financial regulatory reform bill that passed
the House last year represent critical first-steps in addressing the
problem of risk-taking by institutions that are “too big to fail.” But
it has become increasingly clear that to make absolutely certain U.S.
taxpayers are never again forced to rescue a giant financial
institution, we must make sure that no market participant is so large
that a failure would result in economic collapse.

The
six largest U.S. banks today have total assets estimated to be in
excess of 63 percent of our national GDP. The gigantic size of
megabanks, and the perception in the marketplace that they are indeed
too big for the government ever to permit them to fail, gives them a
competitive advantage over smaller financial institutions that distorts
the market and discourages competition. The lack of competition in the
banking industry, in turn, leads to ever-higher levels of risk in the
system.

There is no evidence that giant
financial institutions perform any public service or market function
that cannot be performed as well or better by smaller, and even
substantially smaller, banks and financial institutions. To the
contrary, all the evidence suggests that megabanks distort the market
and impose substantial risk to the public. Further, the unprecedented
size of the largest banks gives them enormous political power,
including the ability to thwart appropriate financial regulation. As
former Secretary of Labor Robert Reich correctly observed in a recent
column, “the only competitive advantage to being a giant bank
headquartered on Wall Street is to have the economic and political
clout to get bailed out by American taxpayers when the next crisis
hits.”

The SAFE Banking Act of 2010
would limit the size of megabanks by prescribing statutory limits on
deposits, non-depository liabilities, and leverage. These steps would
require several of the largest banks to, in effect, break themselves up
to come in under the limits that this law would create. Specifically, the bill would:

• Impose a strict 10 percent cap on any bank-holding-company’s share of the United States’ total insured deposits;

•
Reduce the maximum amount of non-deposit liabilities at financial
institutions (to two percent of United States GDP for banks, and three
percent of GDP for non-bank institutions);

•
Set into law a six-percent equity minimum for bank holding companies
and selected nonbank financial institutions, ending the extreme
leverage that puts at risk the solvency of the entire financial system.

For more information about the SAFE Banking Act, or to become a cosponsor, please contact [removed for privacy] in Rep. Miller’s office.

Sincerely,

Brad Miller
Ben Chandler
Keith Ellison
Steve Cohen

[Members of Congress]

[Robert Reich's article "Break Up the Banks" is attached to the letter]

Comments

[AnAnonymous]

Dont know this bill but aint the underlying idea stupid? Is the US not about growing bigger and bigger?

Too big to fail is a by product of competition.

The capability of anyone to prevent the occurrence of a too big to fail event in a competition is to be doubted.

One of the big fallacies propagated by pro governments ("the government is the answer/solution") and by anti-governments("the government is the cause/problem")