While action last week by three federal agencies requiring “too big to fail” banks to bulk up their reserves is encouraging, we continue to support legislation sponsored by U.S. Sens. Sherrod Brown, D-Ohio, and David Vitter, R-La., that unequivocally give such requirements the force of law.
The Federal Deposit Insurance Corporation, Federal Reserve and Office of the Comptroller of the Currency ordered big U.S. banks to cap their borrowing at 20 times their total assets. The order also expands the definition of assets used to calculate a bank’s leverage and would require the banks to be in compliance by 2018.
Banks that were “too big to fail” were in the headlines during and after the financial crisis of 2008. The federal government pumped billions of dollars in bailout money to some of the banks because the alternative would have been a meltdown.
One might think that in the interim, the big banks would have pulled in their horns, but instead they seem to have welcomed being labeled too big to fail, because it allows them to conduct business knowing — or at least being pretty darn sure — that if they get in trouble again, the government (read that the taxpayers) will bail them out again. And they’re probably right because, once again, the alternative would be worse.
Growing like Topsy
And so, as Sen. Brown points out, since the near catastrophe of 2008, the big banks that the taxpayers stepped in to save haven’t gotten smaller; they’ve gotten bigger. The nation’s four largest banks — JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo — are nearly $2 trillion larger today than they were before the crisis.
Meanwhile, the community banks that power much of the growth of local economies are at a competitive disadvantage.
The regulatory moves taken by FDIC, the Fed and the comptroller are better than nothing, and may be the best that can be hoped for. While there are efforts being made in the Senate, — not only by Brown and Vitter — to address the dangers of unbridled growth in the banking inudstry, the inclination in the Republican House is toward more deregulation.
There is nothing conservative about allowing huge banks to operate in ways that not only imperil the economy, but rely on tax money to provide a safety net. And there is nothing radical about efforts by regulators, the administration or Congress to hold the nation’s biggest banks to stricter standards of capitalization than are in place in Europe.
That the best the regulators think they can do is shoot for controls to be in place five years from now is scary enough. The really frightening part comes when the banks’ lobbyists start spreading cash around Washington to protect their interests — at the taxpayers’ expense.