By Ted Kaufman, Contributor In 2010, the Brown-Kaufman amendment to Dodd-Frank, which would have imposed asset and liability limits on banks, was decisively defeated by a 61-33 vote in the Senate. I was frustrated, but not surprised. Treasury Secretary Geithner and the Obama administration opposed it. Only three Republicans voted for it. It was clear that too many Senators had bought the pitch that the banks had been chastened by their “near death experience,” and that new powers given regulators in Dodd-Frank would solve the TBTF problem. Two years later, “chastened” is not an adjective I would use to describe our megabanks. They have spent millions in lobbying dollars to gut already watered down Dodd-Frank provisions. And the biggest banks have gotten bigger. In 1995, our six largest banks had total assets that added up to 18% of GDP. Today they are 63% of GDP. Does anyone doubt that if any of them got into trouble the government would again have to come to their rescue? Certainly the worldwide bond markets are convinced it would happen. That’s why our big banks borrow money on the open market at a rate that is 0.8 percent lower than the rate paid by smaller banks. In the case of JPMorgan Chase, that amounts to a $14 billion a year government subsidy. If you believe, as I do, in free, competitive markets, that TBTF rate advantage is repugnant. So were the LIBOR and London Whale scandals. So was the admission by the Attorney General of the United States that megabank executives were effectively too big to jail. Events since the defeat of Brown-Kaufman have made it increasingly obvious to more and more people that we still have a critical TBTF problem. I believed, then and now, that banks that are too big to fail and demonstrably too big to manage are too big to exist. The soon-to-be-introduced Senate bill co-sponsored by Sherrod Brown (D-OH) and David Vitter (R-LA) doesn’t explicitly break up TBTF banks, but it is a major step in the right direction. Requiring banks to maintain a ratio of 10 percent of equity capital to total assets would make them less likely to need a government bailout in the next financial crisis. Because the bill would also impose additional capital requirements of up to 15 percent on banks with assets of more than $400 billion, it is likely its passage would encourage the megabanks to restructure. Does it have any chance of becoming law? Senator Brown has picked up a lot of allies in the past two years, including his conservative Republican co-sponsor. Jeb Hensarling, the Republican Chair of the House Financial Services Committee, has pledged to “end the phenomenon of ‘too big to fail’ and reinstate market discipline.” George Will recently wrote a column supporting Senator Brown’s efforts. Peggy Noonan believes that “megabanks have too much power in Washington” and “too big to fail is too big to continue.” Sandy Weill, the creator of the Citibank behemoth
From: http://www.forbes.com/sites/tedkaufman/2013/04/18/whos-for-too-big-to-fail-reform-now/
