AT HEARING OF SENATE BANKING COMMITTEE, BROWN PRESSED REGULATORS TO IMPLEMENT HIGHER LEVERAGE RATIOS, ADDRESS 'TOO BIG TO FAIL' POLICIES
Sens. Brown and Vitter Introduced Legislation that Would Eliminate Government Subsidies for Wall Street Megabanks
"It's time that regulators take action to implement higher leverage standards. It's been more than six months since federal regulators announced a plan to increases leverage ratios for banks and today, our financial system is no safer from the threat of a megabank failure," Brown said. "These agencies owe it to American taxpayers to ensure their hard-earned money does not serve as the backstop for risky practices by
"I want to know why the regulators are backtracking from any progress they would have made to end too big to fail," Vitter said. "What I'm hearing from the regulators is that they're unwilling to lead by example. Instead they want to follow the example of European bank regulators, and that will lead to a race to the bottom, only expediting and exacerbating the next financial crisis. Regulators need to take a meaningful step forward and push for a strong increased leverage ratio, because if they don't, the
Thursday's hearing follows continued calls by Brown and Vitter to address the implementation of increased leverage ratios in the U.S. financial system. In January, Brown and Vitter called on regulators to strengthen proposed supplementary leverage ratios following the announcement by the
The Terminating Bailouts for Taxpayer Fairness Act (TBTF Act), or Brown-Vitter, would ensure that financial institutions have adequate capital to protect against losses. Specifically, the TBTF Act would:
Set reasonable capital standards that would vary depending on the size and complexity of the institution. Economic and financial experts agree that adequate capital is critical to financial stability, reducing the likelihood that an institution will fail and lowering the costs to the rest of the financial system and the economy if it does.
. Mid-sized and regional banks would be required to hold eight percent in capital to cover their assets
. Megabanks - institutions with more than
. Community banks would remain unchanged by the legislation, as the market already requires them to maintain capital ratios approaching 10 percent of their assets
Limit the government safety net to traditional banking operations. When the government established the Federal Reserve in 1913 as a lender of last resort and created deposit insurance in response to the Depression, support was intended for commercial banks that provided savings products and loans to American consumers and businesses. At that time, most banks had enough shareholder equity equal to 15 to 20 percent of their assets. In the ensuing decades, the expanding federal safety net allowed financial institutions to depend less and less on their own capital. Federal support was stretched far beyond its original focus, particularly when financial institutions were permitted to enter into the business of insurance, securities dealing, and investment banking. Brown and Vitter's bill would limit the government safety net to traditional banking operations, protecting commercial banks rather than risky, investment banking activities.
Provide regulatory relief for community banks. By reducing regulatory burdens upon community banks, they can better compete with mega institutions. Because community institutions do not have large compliance departments like
. Expands the definition of "rural" lenders that can offer balloon mortgages
. Reduces some impediments for small banks and thrifts to raise capital or pay dividends.
. Creates an independent bank examiner ombudsman that institutions can appeal to if they feel that they have been treated unfairly by their examiner.
. Adopts privacy notice simplification legislation.
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