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New Year, New Strikes on Big Banks

Several lawmakers have proposed legislation to limit the size of banks and some of their riskier financial operations.

by
Rodrigo Sermeño

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January 17, 2014 - 12:24 am
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WASHINGTON – Lawmakers on the Senate Banking Committee criticized the size of the nation’s biggest banks at a hearing last week, setting the tone this year for continuous pressure from Washington to break up or shrink large financial institutions.

Sen. Sherrod Brown (D-Ohio) said it is “unacceptable” that the largest Wall Street banks receive more financial benefits than regional and community banks.

“The largest Wall Street banks are so much larger and more concentrated than they’ve ever been, and because of their size, both their economic clout and their political clout are enhanced,” Brown said. “If we agree that no institution should be too big to fail, if we agree that all bailouts must end, then we must agree that we must do something about this.”

The hearing focused on preventing future bailouts of “too big to fail” financial institutions, which are only getting bigger.

Brown cited research by SNL Financial that indicates the four largest banks control about 42 percent of the banking industry. This number is up from less than 9 percent in 1990.

Between 1990 and 2009, 37 financial institutions merged 33 times to become the nation’s four largest bank holding companies. In 1995, the top six banks had assets equal to 17 percent of GDP. Today, they are more than 60 percent.

“The four largest banks are nearly 40 percent bigger today than they were just five years ago. The six largest banks now control two thirds of the banking assets in this country, a 37 percent increase over where they were just in the last five years,” Sen. Elizabeth Warren (D-Mass.) said. “These banks, in other words, are a whole lot bigger now than they were when we bailed them out in 2008 because they were too big too fail.”

Several lawmakers on the committee have proposed legislation that would limit the size of banks and some of their riskier financial operations.

Warren has introduced a bill that would break up the biggest banks by separating the traditional business of deposit-taking and lending from risky activities like proprietary trading.

Brown and Sen. David Vitter (R-La.) have introduced legislation that would require the largest banks to maintain a 15 percent capital ratio. The bill would also tie the hands of regulators on whether they can pour taxpayer money into failing banks.

During the financial crisis of 2007-2009, the federal government provided more than $1 trillion in loans and hundreds of billions of dollars in capital and guarantees to financial institutions in an effort to stabilize financial markets and the broader economy.

Government assistance was made available to institutions of various sizes, but by the end of 2008 banks with $50 billion or more in total assets were using the program more than smaller firms.

Bloomberg estimates that the terms of the loans provided these banks with a $4.8 billion profit.

The panel also discussed a report by the Government Accountability Office (GAO) that analyzed the economic benefits megabanks received as a result of taxpayer-funded support during the financial crisis.

The GAO analysis found that those banks were able to borrow at lower rates and benefitted disproportionately from bailout programs.

“From participation in these crisis-driven programs, bank holding companies and their subsidiaries experienced individual benefits, including liquidity benefits from programs that allowed them to borrow at lower interest rates in greater quantities and at longer maturities than potential market alternatives,” said Lawrence Evans, director of financial markets at the GAO.

The six largest bank organizations were significant participants in emergency programs, particularly those targeting short-term funding markets. Some also benefited from institution-specific actions, including additional capital injections and guarantees.

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All Comments   (16)
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12 weeks ago
12 weeks ago Link To Comment
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12 weeks ago
12 weeks ago Link To Comment
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12 weeks ago
12 weeks ago Link To Comment
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13 weeks ago
13 weeks ago Link To Comment
Reestablishing Glass-Steagall does not in itself limit bank size but it's an excellent idea anyway.

The classic problem with limiting US bank size is that foreign banks are still not limited, and then they have that fractional advantage over US banks especially for international business. It doesn't make much sense, but there it is.
13 weeks ago
13 weeks ago Link To Comment
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13 weeks ago
13 weeks ago Link To Comment
The way to ensure that financial institutions do not become too big to fail is to let them fail when they become stuck on stupid.
13 weeks ago
13 weeks ago Link To Comment
WHen you feed something, you get more of it. Stupidpoiticians can't figure that one out? FedGov have NO BUSINESS meddling in banking whatever, except tp prevent banks from restricting interstate commerce. FedGov changed the rules for figuring loan to value for home mortages, thus by a flip of the wrist making Washington Mutual "non-compliant". They were a relatively small player, and a great insititution to deal with. Feds sold them down the river to JPMorgan Chase, one of the biggest, and sleaziest. It took about a year for Chase to chase away a good part of their client base.. including my personal and buisnes accounts. I could not afford to deal with Chase. Found anoher local, responsible institution, but lost many of the benefits of an outfit the size of WaMu. Then I learn of Chase's deliberate, and likely fraudulent, manipulation of the silver bullion market, and I want to go DO something, but can't cause I'd end up in jail, but they are the ones that should. The solution? Stop feeding the big boys by special rules, concessions, and bailout miney the little guys don't get. They are NOT too big to fail. Let them. Chase, BofA (I've NEVER liked those scoundrels), Wells Fargo, and probably US Bank,. none are too big to fail. WHY do FedGov think they have to preserve dying organisms? LEt Darwin be half right, for Pete's sake. Survival of the fittest is a useful filter for what is strong and ought to be preserved.
13 weeks ago
13 weeks ago Link To Comment
Not "too big to fail" but "too big not to shake down for billions in a government-sponsored protection racket".
13 weeks ago
13 weeks ago Link To Comment
So, Sherrod Brown and the other useful idiots think that the big banks are a problem? Then, why did they bail them out during the Crash? If they had let the big banks go under because of all their misgovernance, we might not have a probem with the big banks. But, nooo, Congress had to swallow Hank Paulsen's scamming and vote the TARP, which turned into a nightmare followed by a continuing nightmare of insolvency while the big banks prosper despite the tiny bit fines here and there. A Dem dominated Congress voted for all this. Remember that. A Dem Congress. has screwed up our economy in any number of ways SHT!
13 weeks ago
13 weeks ago Link To Comment
They should ALL be busted down into at least 20-30 smaller banks. But that will never happen. All politicians love too big to fail as well as all banks & lobby snakes.
13 weeks ago
13 weeks ago Link To Comment
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