End Too Big to Fail: New Bipartisan Bill Aims to Prevent Future Bailouts, Downsize Dangerous Banks

by Mary Bottari at PR Watch

Last week, Senators Sherrod Brown (D-OH) and David Vitter (R-LA) introduced the first bipartisan legislation aimed directly at putting an end to “too big to fail” financial institutions and preventing future bailouts of America’s behemoth banks.

Protecting Taxpayers by Strengthening Capital Requirements

Senators Sherrod Brown and David Vitter

Too big to fail banks are so enormous and so intertwined that governments are likely to go to extreme lengths to ensure that they do not fail. These banks enjoy an implicit government guarantee that has been quantified by economists as a hidden taxpayer subsidy that disadvantages smaller banks. Bloomberg recently pegged this subsidy at some $84 billion, a number roughly equivalent to the profits of the nation’s largest banks.

The U.S. Treasury likes to call these banks, “systemically important;” a better phrase is “potentially catastrophic.” With mergers and buyouts, America’s behemoth banks only got bigger during the financial crisis. While the austerity crowd is up in arms about a federal budget deficit projected to be 2.4 percent of GDP in 2015, JPMorgan Chase alone has assets in the range of 25 percent of GDP, under accounting rules that provide a better measure of derivatives contracts. If you add in Bank of America, Citigroup and Wells Fargo — that gets you to 93 percent of GDP. The failure of any one of these behemoth banks could rock the economy and trigger another massive bailout.

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