Monday, April 26, 2010
Bank of America, Wells Fargo and JPMorgan Chase would have to sell off assets and shrink in size if new legislation introduced in the Senate becomes law. Democrats are pushing the bill in an attempt to rid the nation of banks “too big to fail” and avoid future scenarios, like that in 2008, when the federal government must rescue ailing institutions to avoid causing economic calamity.
“The major issue is to keep the banks from getting too large to begin with,” said Senator Sherrod Brown (D-Ohio). “Too big to fail is too big. That’s where we need to be much more aggressive.”
Mirroring language already included in the Senate’s financial reform bill, the new legislation would give BofA, Wells Fargo and JPMorgan three years to reduce their non-deposit liabilities to an amount equal to 2% of the nation’s gross domestic product. All three banks are currently in excess of this ceiling.
The bill also would affect major financial firms that are not banks, such as AIG, Metropolitan Life or the financial arm of General Electric, capping their liabilities at 3% of GDP.
Supporters of the plan say the Federal Reserve has long had the power to check the growth of large banks, but has not acted.
A bill passed in 1994 barred any single bank from controlling more than 10% of the nation’s total deposits. However, Bank of America, Wells Fargo and JPMorgan Chase have consistently been granted waivers to avoid this limitation or they have found loopholes to circumvent the restriction.
-Noel Brinkerhoff
Financial Debate Renews Scrutiny on Banks’ Size (by David Herszenhorn and Sewell Chan, New York Times)
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