In a response to the 10th anniversary of the global Financial Crisis and domestic Wall Street bailout, Sen. Bernie Sanders (I-Vt.) has introduced legislation that would “break up the nation’s biggest banks and risky financial institutions in order to safeguard the economy.”
Rep. Brad Sherman (D-Calif.) will introduce a companion bill in the House.
Today the six largest banks in America control assets equivalent to more than half the country’s Gross Domestic Product and the four largest banks are on average about 80 percent larger today than they were before the bailout, Sanders said in a statement. His proposed legislation would cap the size of the largest financial institutions so that a company’s total exposure is no more than 3 percent of GDP, roughly $584 billion today.
By applying a cap on the size of financial institutions, the bill would break up the six largest banks in the country: JP Morgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley. These financial institutions have over $10 trillion in assets.
The bill would also address large non-bank financial service companies such as Prudential, MetLife, and AIG.
Sanders’ bill also:
requires the Federal Reserve vice chair of supervision and the Financial Stability Oversight Council to submit written reports on the status of financially significant institutions as well as testify on the issue before Congress;
entities that exceed the 3 percent cap would be given two years to restructure until they are no longer too-big-to-fail as overseen by the Federal Reserve vice chair of supervision or chair of the Fed Board of Governors; and
within 90 days after an entity is designated as “Too Big to Exist” by the Fed, it would be prohibited from accessing Federal Reserve discount facilities and from using insured deposits for speculative activities, derivatives, or hedging.
The bill defines “Too Big to Fail” as any entity with total exposure greater than 3 percent of our nation’s GDP—“meaning that if the entity failed, due to its size, exposure to counterparties, liquidity position, interdependencies, role in critical markets, or other factors it would have a catastrophic effect on the stability of either the financial system or the U.S. economy without substantial government assistance.”
“Total exposure” for bank holding companies reported to the Federal Reserve includes on-balance-sheet assets, derivatives, and off-balance-sheet items for all subsidiaries.
“No financial institution should be so large that its failure would cause catastrophic risk to millions of Americans or to our nation’s economic well being,” Sanders said. “We must end, once and for all, the scheme that is nothing more than a free insurance policy for Wall Street: the policy of ‘too big to fail.’ ”