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senate Bill S. 1206

Breaking Up Banks That Are "Too Big to Fail"

Argument in favor

Taxpayers should never again be left footing the bill if the largest banks fail and threaten to bring the entire economy down with them. Breaking up those banks makes them more manageable and makes the financial system more stable.

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06/15/2015
"Despite the 2008 meltdown on Wall Street, just five banks still control half of the industry’s $15 trillion in assets, and not a single executive was ever convicted of a crime. We must reinstate Glass-Steagall, empower regulators to hold law-breakers accountable, and break up big banks before they break us. We need stronger protections for American families, not billion-dollar banks." [martinomalley.com]
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M. steven's Opinion
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06/07/2015
We lost everything due to the financial 'crime'. Then you bailed them out with our tax money. Still no regulations. Still no prosecutions and you take their money for your campaigns.
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Evercraft's Opinion
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07/04/2015
"Too big to fail" is code for corporations that have a gun to the public's head and thus, cannot fail without taking many of us down with them. How is that even vaguely capitalism, when the market is forced to make decisions and is afraid to offend banks and corporations? Some semblance of control has to be given back to the people.
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Argument opposed

There are economic advantages to having large banks, and small banks have fewer resources at their disposal — which can make it easier for them to fail. Plus, it’d be pretty chaotic to split some of these banks.

Keventle's Opinion
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07/03/2015
The gov. Should never bail out banks or give subsidies, this is partly why there are such few banks. If you are not happy with your money being in a big bank then move it somewhere else. We are in a serious problem if we allow the gov. to break up businesses when they find them "to big"
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PieceKeepr's Opinion
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07/02/2015
When the government decides it has the power to break up a business we are in serious trouble.
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josephlacko's Opinion
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07/03/2015
While we should not bail out banks in the event of future economic hardships, we should not preemptively break them up. When they fail, they will split up naturally.
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What is Senate Bill S. 1206?

As sponsoring Sen. Bernie Sanders (I-VT) puts it, this bill"is designed to break up financial institutions that are so big they create the risk of blowing up the American or global economy." 

This bill would create a list of entities deemed “Too Big To Fail” — including U.S. bank holding companies that have been identified as systemically important banks by the Financial Stability Board. Think Citigroup, Goldman Sachs, Bank of America, and similar institutions. 

The list would be compiled by the Financial Stability Oversight Council and sent to the Dept. of the Treasury. The Secretary of the Treasury would then:

  • Break up those entities so their failure could no longer have a catastrophic effect on the U.S. or global economy without a taxpayer bailout.

  • Submit the list to Congress and the President.

Any entity on the list would not be able to use or access credit advances from the Federal Reserve, the Federal Reserve’s discount window, or any program or facility made available under the Federal Reserve Act. This includes asset purchases, temporary or bridge loans, government investments in debt or equity, and "capital injections" (i.e. bailouts) from any federal institution.

Insured financial institutions and the entities that own them would be prohibited from using insured deposits to fund:

  • Activities related to hedging that are not directly related to commercial banking activities at the insured bank;

  • Any use of derivatives for speculative purposes;

  • Activities related to the dealing of derivatives;

  • Any other form of speculative activity specified by regulators.

The above limitations also apply to entities on the list in order to prevent insured deposits from being put at risk, or creates a risk of loss to the Federal Deposit Insurance Corporation’s (FDIC) Deposit Insurance Fund.

Impact

Taxpayers, financial institutions found to be “Too Big To Fail”, the Financial Stability Oversight Council and the Financial Stability Oversight Board, the Dept. of the Treasury, Congress, the Secretary of the Treasury, and the President.

Cost of Senate Bill S. 1206

A CBO cost estimate is unavailable.

More Information

Of Note: There are eight U.S. banks that are classified as global systemically important banks by the Financial Stability Oversight Council, including:

  • Bank of America

  • Bank of New York Mellon

  • Citigroup

  • Goldman Sachs

  • JP Morgan Chase

  • Morgan Stanley

  • State Street

  • Wells Fargo

As of March 2014, there were an additional 23 banks classified as domestic systemically important banks.


In-Depth: For those of you who don't remember the financial crisis of 2008 — check out this quick explainer from This American Life. Warning against the consequences of another financial crisis without enacting his legislation, Sen. Bernie Sanders (I-VT) believes that:

“If any one of these financial institutions were to fail again, the taxpayers of this country would be on the hook for another bailout, perhaps even larger than the last one. We cannot let that happen again.”

This isn’t the first attempt Sen. Sanders has made to try and break up the biggest banks in the U.S. He introduced similar versions of this bill in 2009, and again in 2013 — though neither version progressed out of committee in the Senate.

Defenders of big banks point out that the process of breaking them up would be “incredibly disruptive in the short run and anti-competitive in the long run.” There are also questions about what would be left over after the break up, as the new, smaller entities may still be large enough to be considered systemically important financial institutions.

The Federal Reserve Bank of St. Louis analyzed the pros and cons of breaking up big banks, and while it did not offer a conclusive recommendation either way — there were some intriguing insights. It notes that treating banks as if they are “Too Big To Fail” encourages them to take on more risk because of their funding advantage, although there are still safeguards against excessive risk-taking. The analysis also found that there are economies of scale for larger banks that assist in mergers and acquisitions, and could allow them to receive lower risk premiums that allow them to offer services more affordably to consumers.


Media:

Summary by Eric Revell
(Photo Credit: Flickr user )

AKA

Too Big To Fail, Too Big To Exist Act

Official Title

A bill to address the concept of "Too Big To Fail" with respect to certain financial entities.

bill Progress


  • Not enacted
    The President has not signed this bill
  • The house has not voted
  • The senate has not voted
      senate Committees
      Committee on Banking, Housing, and Urban Affairs
    IntroducedMay 6th, 2015
    "Despite the 2008 meltdown on Wall Street, just five banks still control half of the industry’s $15 trillion in assets, and not a single executive was ever convicted of a crime. We must reinstate Glass-Steagall, empower regulators to hold law-breakers accountable, and break up big banks before they break us. We need stronger protections for American families, not billion-dollar banks." [martinomalley.com]
    Like (87)
    Follow
    Share
    The gov. Should never bail out banks or give subsidies, this is partly why there are such few banks. If you are not happy with your money being in a big bank then move it somewhere else. We are in a serious problem if we allow the gov. to break up businesses when they find them "to big"
    Like (18)
    Follow
    Share
    We lost everything due to the financial 'crime'. Then you bailed them out with our tax money. Still no regulations. Still no prosecutions and you take their money for your campaigns.
    Like (27)
    Follow
    Share
    "Too big to fail" is code for corporations that have a gun to the public's head and thus, cannot fail without taking many of us down with them. How is that even vaguely capitalism, when the market is forced to make decisions and is afraid to offend banks and corporations? Some semblance of control has to be given back to the people.
    Like (18)
    Follow
    Share
    When the government decides it has the power to break up a business we are in serious trouble.
    Like (11)
    Follow
    Share
    While we should not bail out banks in the event of future economic hardships, we should not preemptively break them up. When they fail, they will split up naturally.
    Like (8)
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    Divestiture is a politically fraught issue that would not have been needed had the 44 big banks not folded into four surviving mega banks in 30 years. We will pay for that consolidation forever.
    Like (8)
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    I laugh when I read some of the ignorant comments of those who voted NAY to this bill. Here is the fact: WALL STREET FU**** US IN 2008! If you voted NAY to this bill, then please, at the very least, do not give us this "government should not decide this" BULLS***! The Wall Street banks were the ones who CRASHED OUR ECONOMY, and they did it because there was very little government oversight, so the banks could literally GAMBLE WITH PEOPLE'S SAVINGS in the Stock Market without getting punished! The Big Banks must be broken up! For f***'s sake, we spent hundreds of billions of OUR tax dollars bailing out these corporate a******* who screwed us in the first place. We need to stop kissing Wall Street's a** and start kicking Wall Street's a**. Period.
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    The FCC broke up Mountain Bell when it started to behave monopolistically with our communications infrastructure -- and we didn't have to financially prop up their industry before, during or after. For those that say "it'd be too difficult" to break them up should know that many of these banks already operate as umbrella corporations. In other words, there's an over-arching company that runs multiple, wholly independent subsidiaries. Additionally, companies, once broken apart, could negotiate as a consortium/group thereby negating many of the drawbacks a smaller bank might encounter. They rarely pay taxes (by legally shifting monies to tax-free zones or havens) yet enjoy a preferred status & require America to prop them up. But, let's get real: we're talking about multi-national corporations with billions (or more) of liquid assets & holdings -- there's not much they couldn't do…just like they are today. My only question is: what are we waiting for?
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    This a no brainer and to those that say no you obviously don't have any idea how govt. works or the economy.
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    The financial limits on this are what truly bother me. Limiting speculation with funds that are insured? Would you rather them use uninsured funds and lose those? And speculation is the name of the game on Wall Street, without speculation you don't have much profit.
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    No need to break them up. JUST NEVER AGAIN BAIL THEM OUT. If they fail, let them fail. If Lehman can do it, so can all the others.
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    Those in opposition claim that it's dangerous when government has the ability to decide which businesses are too big, but that is the exact definition of Monopoly busting. This is one of the most important abilities that our government has in a capitalistic society for maintaining balance and it has always been there.
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    Looking at the recent bank problems with Wells Fargo and Deutsch Bank in Germany, it's obvious banks that are too big cannot control their branch banks. It would be to everyone's advantage to break up these gigantic banks into smaller ones. The current idea that banks need to be de regulated had been shown historically to be a formula for disaster. Keep regulations intact and strengthen them.
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    As bernie says, if it's too big to fail it's too big to exist. Break it up people.
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    I think that most students are not proceed for college life after high school. Better preparation and more real life skill learning will help prepare students for their future in educational and in the real world.
    Like (1)
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    Any Corporation that is "Too Big To Fail" should be a signal that the company needs broken up. No corporation should control so much control over the economy that it's criminal acts result in the collapse of the U.S. and World economies. Breaking up these corporation would increase competition and benefit the general public. If Teddy Roosevelt can break up the powerful robber barons over 100 years ago surely we can do the same.
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    If an entity can not succeed in a competitive marketplace it deserves to fail. The consumer not government is the best judge of a business success or failure
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    The gov should neither break up banks, nor bail them out when and if they fail. If you don't like that big banks have so much money, take your money to another bank.
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    This bill will help reduce the risk of another financial recession costing taxpayers millions to bail out big banks. This is a common sense idea!
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