Critics of banks deemed “too-big- to-fail” gained political support in the waning hours before the U.S. Congress adjourned over the weekend when senators voted unanimously in favor of ending perks enjoyed by the largest banks.
Senators voted 99-0 in support of a non-binding measure calling for an end to implicit subsidies the credit markets give banks over $500 billion because of the perception that the federal government would bail them out.
“The measure was non-binding, but it was an important step forward,” Senator Elizabeth Warren, a Democrat from Massachusetts and a critic of large banks, said in a statement. “I’m glad that Republicans and Democrats can agree: ‘too-big- to-fail’ needs to end and these big-bank subsidies make no sense.”
The amendment, sponsored by Senators David Vitter, a Republican from Louisiana, and Sherrod Brown, a Democrat from Ohio, is seen as an early gauge of support for a bill the two lawmakers said they will introduce next month to provide economic incentives for banks to reduce their size.
Brown said the goal of the legislation is to take way the “economic advantage the market gives” large banks and to reduce the risk they pose to the entire financial system. He said support for a too-big-to-fail bill has grown over the last 10 to 12 months.
“I’m confident that support is growing,” Brown said in a March 10 interview with Bloomberg Television. “I don’t know that we’ve got the 50 or maybe 60 votes we need yet.”
$500 Billion
The upcoming bill would impose additional capital requirements on the largest banks -- defined in the amendment as those with more than $500 billion in assets. The new capital rules would not include risk weights that “can be manipulated and gamed,” Vitter said in remarks on the Senate floor on Feb. 28.
Six U.S. banks have more than $500 billion in assets, including JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Wells Fargo & Co., Goldman Sachs Group Inc. and Morgan Stanley.
The amendments come as more public officials have said they believe the 2010 Dodd-Frank Act didn’t do enough to end the perception that the government would step in to rescue large banks. Federal Reserve Governor Daniel Tarullo and Dallas Fed President Richard Fisher are among the most prominent supporters of taking additional measures to curb bank size. The Brown- Vitter bill also incorporates ideas from Federal Deposit Insurance Corp. Vice Chairman Thomas Hoenig and former FDIC Chairman Sheila Bair. The bill would require banks to rely more on tangible equity for capital and less on risk weighted assets.