Last week Senators Sherrod Brown and Ted Kaufman unveiled the “SAFE Banking Act” with a clear purpose: Breaking up the big banks.
The proposal places hard leverage and size caps on financial institutions. It is well crafted and based on a great deal of hard thinking, according to economist Simon Johnson. And, as suggested on the front page of The New York Times, it has the potential to draw a significant amount of support.
When the financial crisis first engulfed the world, wrote William Greider, opinion leaders rushed to explain it as a freak of nature — a "perfect storm" that arrives once a century. Subsequent revelations destroyed that nonsense. "Like famines, financial crises are man-made. This one was made in America–invented on Wall Street and enabled by Washington complicity, Democrats and Republicans alike."
And the mechanism to enable the crisis was the big banks and their de-regulated ability to run amok. This video, created by my friend Mary Bottari, amusingly exposes the role the big banks have played in fomenting economic distress.
Fortunately, the perfidy of the mega-banks has not gone unnoticed, and Brown and Kaufman’s bill represents the first legislative effort to confront the problem. Stressing the need for more competition among smaller banks and increased business lending, the senators believe that the largest financial institutions present a prohibitive risk to our economy.
The bill would place a cap on any financial institution, limiting its total assets to three percent of GDP (that would lower to two percent for banks, and three percent for non-bank institutions). Currently, the six largest banks have holdings that equal 63 percent of GDP. The Safe Banking Act would also impose a ten percent cap on any bank holding company’s share of insured deposits.