New Financial-Reform Bill Would Break Up Banks.

sherrod_brown.jpgSens. Sherrod Brown (right), Ted Kaufman, Robert Casey and Sheldon Whitehouse are introducing a new financial-reform bill, the Safe Banking Act of 2010, to limit the size of the banks -- and, in the process, break up existing firms.

Stressing the need for more competition among smaller banks and increased business lending, the senators believe that the largest financial institutions present too much risk to our economy to keep them around. They have the support of the Main Street Alliance, a group of progressive-leaning small business owners who have advocated for strong financial reform and set themselves up in opposition to the Chamber of Commerce.

The bill's central points:

  • Imposing a strict 10 percent cap on any bank-holding-company’s share of the United States’ total insured deposits
  • Reducing the maximum amount of non-deposit liabilities at financial institutions (to 2 percent of United States GDP for banks, and 3 percent of GDP for non-bank institutions)
  • Setting into law a 6 percent leverage limit for bank-holding companies and selected non-bank financial institutions

These steps would require several of the largest banks to, in effect, break themselves up to come in under the limits that this law would create. While most of the existing legislation in the House and Senate contains gestures toward these ideas, this is the first time they've been proposed as statutory limits, something called for by a number of public figures, including several Midwestern regional Federal Reserve presidents and former Fed Chair Paul Volcker.

"The idea that we pass this on to the regulators who say, 'trust me,'? Those days are gone," Kaufman told reporters today.

Brown-Kaufman will be introduced as a bill and also proposed as an amendment to the financial-reform bill in the next two weeks. Brown says he hopes it will gain bipartisan support, noting that Sen. Chuck Grassley voted for Blanche Lincoln's strong derivatives bill this morning, and Bob Corker -- who I wrote about today -- was once again on the floor of the Senate talking confidently about reaching a bipartisan deal.

-- Tim Fernholz

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