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senate Bill S. 3542

Should “Too Big to Fail” Banks Be Broken Up?

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.

Mark's Opinion
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10/29/2018
Absolutely. Too big to fail means too big to care how they do business.
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10/29/2018
If our policy is to prevent big banks to fail then we need to separate them so we don’t get in that position. But if we would actually allow them to fail then keep them intact and let capitalism take it course and let them fail. So depends on the stance of the Government. I don’t support subsidizing someone’s failure nor do I support government over reach but only in the event where it truly is beneficial to the American public. Separating them would provide more competition in the banking industry and hopefully better accountability.
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jayar's Opinion
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10/29/2018
Anything 'too big to fail' should be broken up.
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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. Splitting up big banks itself would cause economic chaos and is government overreach.

Steven's Opinion
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10/29/2018
If our government stops bailing them out, they will fail...
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Aaron's Opinion
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10/29/2018
Breaking them up would cause chaos, if we allow capitalism to take its course and refuse to bail them out, then if they fail they are on their own. The the government can step in and auction off what is left to banks who handle their responsibilities with more diligence.
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Fg's Opinion
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10/29/2018
No bank is too big to fail until the government gets involved If a large bank fails there a lot of other banks to pick up the pieces. The world economy requires large financial institutions Lets keep them in the USA
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What is Senate Bill S. 3542?

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. 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 after submitting 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 by the Fed. 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. 3542

A CBO cost estimate is unavailable.

More Information

In-Depth: Sen. Bernie Sanders (I-VT) introduced this bill to break up the biggest financial institutions that are “too big to fail” because of the threat they pose to the economy:

“No financial institution should be so large that its failure would cause catastrophic risk to millions of Americans or to our nation’s economic well being. We must end, once and for all, the scheme that is nothing more than a free insurance policy for Wall Street: the policy of ‘too big to fail.’”

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.

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.


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 October 2018, there were an additional 22 banks classified as domestic systemically important banks.


Media:

Summary by Eric Revell

(Photo Credit: iStock.com / deberarr)

Official Title

A bill to break up large 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
    IntroducedOctober 3rd, 2018
    Absolutely. Too big to fail means too big to care how they do business.
    Like (182)
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    If our government stops bailing them out, they will fail...
    Like (90)
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    If our policy is to prevent big banks to fail then we need to separate them so we don’t get in that position. But if we would actually allow them to fail then keep them intact and let capitalism take it course and let them fail. So depends on the stance of the Government. I don’t support subsidizing someone’s failure nor do I support government over reach but only in the event where it truly is beneficial to the American public. Separating them would provide more competition in the banking industry and hopefully better accountability.
    Like (81)
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    Anything 'too big to fail' should be broken up.
    Like (58)
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    “too big to fail” failed
    Like (46)
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    along with all other corporations that are now running america
    Like (32)
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    Maybe the Fed needs to be investigated.
    Like (29)
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    Breaking them up would cause chaos, if we allow capitalism to take its course and refuse to bail them out, then if they fail they are on their own. The the government can step in and auction off what is left to banks who handle their responsibilities with more diligence.
    Like (28)
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    Why should we allow entities to continue to have such catastrophic meaning to our national integrity? These entities do not care about the American taxpayer and therefore do not deserve to be bailed out by them.
    Like (22)
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    Yes these to big to fail banks should be broken up. Smaller banks work for the people. Big banks work for their CEO & investitures. We need the banks to either operate or close. No more GOV. bail outs. If a bank fails another bank will take over.
    Like (19)
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    Don't use saving accounts as a weapon to blugeon us.
    Like (17)
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    I believe we should break them up, so when one falls the whole economy won't fall with it. If we have big banks and they fall the tax-payers will have to bail them out so that the economy doesn't suffer as bad as it potentially can, which isn't fair to the American people. Now the down side is people talk about the lack of resources with smaller banks, but I believe if we create a network of small banks working together while working separate. I acknowledge the challenges with that, but I believe it will give the American people the resources needed as well as minimal damages to the economy if the banks does fail.
    Like (16)
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    I am in the process of closing my big bank accounts and opening a savings account with a local credit union and setting up a checking account with a small local bank. I've been to both banks enough lately that I am getting to know the various personnel. The security guard at the local bank even knows my name and greets me when I come in. Small local banks and credit unions are much more invested in the community and less focused on profit.
    Like (12)
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    No monopoly’s!!
    Like (11)
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    Tired of paying for over paid personal who make bad decisions...lock them up
    Like (11)
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    Why is it that we are only a capitalistic society when it comes to individuals and Socialistic when it comes to big business? Why should we taxpayers have to bail out big banks if they fail? They make plenty of money off of us as it is with all of their nonsensical charges. If you know that someone is going to bail you out of poor management, where is the incentive to run a business/bank responsibly? If you fail, you fail. Size shouldn't matter!
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    I don’t mind welfare to help people get a leg up in the world. But corporations are not people no matter what the GOP says. Corporate welfare is a largest recipient of welfare in America. If businesses are constantly bailed out they do not learn. If your child steals a toy or bites a kid in school do you reward them or punish them? It’s time to stop rewarding banks for stealing from the poor to line their pockets.
    Like (9)
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    Absolutely!! These banks are so big and corrupt they actually control our economy, our government and our commodity trading. We can’t ever be put in the position to bail them out again. When these banks gamble the American people pay yet their paychecks to themselves never falter, in fact they give themselves bonuses. That’s not how business actually works. Breaking them up will give them less power and influence to gamble our hard earned money. I’m actually in favor of having a whole host of state banks that all our politicians have to have accounts in to help keep our banking more honest and stable.
    Like (8)
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    By all means YES they should be broken up. 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. 10*29*18 ..... SneakyPete .....
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    Any company that is “too big to fail” must be broken up. Otherwise they hold our country hostage at will. This is the reason we have antitrust laws.
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