Wednesday, April 03, 2013

Senator Sanders to Introduce Legislation Ending Too Big to Fail

Senator Bernie Sanders (I-VT) has indicated that he will introduce legislation to break up large financial institutions and firms and end too big to fail. The legislation would give the Treasury Secretary 90 days to compile a list of commercial banks, investment banks, hedge funds and insurance companies that he deems too big to fail. The affected financial institutions and financial firms have grown so large that their failure would have a catastrophic effect on the stability of either the financial system or the United States economy without substantial government assistance. Within one year of enactment, the Treasury Department would be required to break up those financial institutions and firms identified by the Secretary. The Sanders legislation comes against the backdrop of indications from Senators Sherrod Brown (D-OH) and David Vitter (R-LA) that they will soon introduce legislation ending too big to fail.

Noting that if a financial institution is too big to fail, it is too big to exist, Senator Sanders expects that the legislation will garner support from a number of federal officials, such as Richard Fisher, President of the Dallas Federal Reserve Bank, who recently offered a tripartite approach to reform. First, roll back the safety net to apply only to commercial banks and not to non-bank affiliates. Second, require non-commercial bank customers and counterparties to sign a disclosure acknowledging that there is no implied government backstop. Third, downsize and restructure too big to fail firms, using as little public policy intervention as possible, to realign incentives and reestablish a competitive, level playing field.