News Column

At Hearing of Senate Banking Committee, Brown Pressed Regulators to Implement Higher Leverage Ratios, Address 'Too Big to Fail' Policies

February 6, 2014



WASHINGTON, Feb. 6 -- The office of Sen. Sherrod Brown, D-Ohio, has issued the following news release:

During a hearing of the Senate Banking Committee, U.S. Sens. Sherrod Brown (D-OH) pressed federal regulators from the Federal Reserve System, Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC) to take immediate action to implement their Supplemental Leverage Ratio for banks with more than $750 billion in assets.

"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 increase 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 Wall Street institutions."

"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 Wall Street megabanks will continue to profit off of the American taxpayers."

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 Basel Committee on Banking Supervision reducing international leverage standards. Brown and Vitter remain dogged that increased standards are a critical component to reducing the threat of 'Too Big To Fail' megabanks and their impact on the U.S. financial system.

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 $500 billion in assets - would be required to meet a new 15 percent capital requirement

* 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 Wall Street institutions, this legislation provides commonsense measures to lessen the load on our local banks.

* 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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Source: Targeted News Service


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