During the final days of intense debate in 2010 over a bill aimed at preventing another financial meltdown such as the one in 2008, Sen. Sherrod Brown pressed for an amendment that would break up the biggest banks in country.
Brown won the backing of 32 other senators for the measure, but three years later the idea hasn’t gone away. If anything, there appears to be growing support for Brown’s idea of working to make banks smaller in order prevent the federal government from having to pay hundreds of billions of dollars to salvage them again if they fail.
His idea is bolstered as well by worries that the nation’s biggest banks are “too big to jail,” after Attorney General Eric Holder said the banks were too large to prosecute. Conservative columnist George Will was written a glowing column on Brown’s push. And Republican Sen. David Vitter, R-La. is cosponsoring legislation that would impose additional capital requirements for the nation’s largest banks: Wells Fargo, Goldman Sachs, Morgan Stanley, Bank of America, Citigroup Inc., and JPMorgan Chase & Co.
Brown said his office is talking with 10 Republicans – just three supported him in 2010 – about provisions that would end the concept of “too big to fail.”
Back in 2010 Brown was an “outlier,” said Ed Mierzwinski, consumer program director for the Washington office of the Ohio Public Interest Research Group. And now, Mierzwinski said, his views are “more mainstream than anybody thought.”
“Sen. Brown was for protecting depositors and taxpayers from big banks before it was cool,” he said.
Still, his views are being met skeptically by those who say it’s too soon to break up the banks. Some Dodd-Frank regulations have yet to be implemented, said former U.S. Rep. Mike Oxley, R-Findlay, a former chair of the House Financial Services Committee.
“We’re not even to the 20-yard line yet,” he said. “You have to let the regulations get on the books and see how it works in the real world before you start tinkering with the size of the banks.”
Oxley said the nature of a global market place means that that it’s necessary for some U.S. banks to be big. “You’ve got to deal with that reality,” he said. “If you did pass legislation to make banks smaller, a lot of business would flow overseas.”
He disputes the notion that there’s a political appetite for breaking up the banks. It’s too soon, he said.
“My guess is all of the air is out of that issue right now having passed Dodd-Frank,” he said. “The regulations aren’t even completed yet.”
But Brown’s views may be more relevant in light of the news that Sen. Tim Johnson, D-S.D., chairman of the Senate Banking Committee, will not run for a fourth term in 2014. His retirement puts Brown in line – albeit behind a handful of other Democratic senators including Sens. Chuck Schumer, D-N.Y., and Bob Menendez, D-N.J. – to become chairman.
Brown, interviewed late last month, said a chairmanship is a long shot.
“There are a number of people who would have to decline it before me, senators senior to me who would have to decline it,” he said. “If they do, I’d be glad to do it. I think it would be a good platform to work on my legislation to break up the banks and to break up the largest six banks, and to require higher capital standards and to end this too big to fail and too big to jail.”
Five years after the bank meltdown, Brown remains furious that it occurred. He argues that the six biggest banks have assets equal to 63 percent of the nation’s Gross Domestic Product – far higher than in 1995, when the six biggest U.S banks had assets equal to 18 percent of GDP.
Because they are so big, they’re unwieldy to control. Operating under the concept that if they fail, the federal government will bail them out, they take risks. And those risks, he said, led to the 2008 financial meltdown.
“There is no other industry in the United States and in the world that, if it were to fail, would take down the entire economy and cause a second Great Depression,” said Dennis Kelleher, president and CEO of Better Markets, a Wall Street watchdog.
Kelleher said that the cost of the 2008 collapse was $12.8 trillion – and “every woman, man and child paid the price.”
“The damage that Wall Street did to this country was literally incalculable,” he said. “The damage was millions of lost jobs. Hundreds of billions of lost savings for families that had 401ks, that had money in the bank, that had money in the stock market.”
Others say Brown’s answer – breaking up the big banks – isn’t the best solution.
Rob Nichols, president and CEO of the Financial Services Forum, an organization comprised of the CEOs of 19 of the largest and most diversified financial services institutions in the United States, disputes the notion that nothing has changed since the financial crisis. He said in fact, big banks have worked to ensure that they never have to rely on taxpayer dollars again, working hard to double capital and liquidity and solidify their balance sheets.
Dodd-Frank, he said, is still being implemented, so it’s soon to tell what the impact of that law will be. But even before that, he argues, banks worked to double their capital requirements in an effort, he said, to make sure that “if a bank fails, tax money should never be on the table.”
He said that a global economy needs all sorts of banks – big banks, small banks, community banks – to succeed. “We should have them all,” he said.
James Gattusso, a senior research fellow at the Heritage Foundation agrees that the “too big to fail” doctrine is flawed – if a big bank got in trouble, they’d need a bailout lest they tank the economy – but “I don’t think breaking up banks solves the problem,” he said.
He advocates allowing banks to fail, though working to minimize the disruption to the rest of the economy.
“There’s a lot of pent-up desire to just get this out of the way, cut the cord and break up banks,’ he said. “But that causes more problems than it solves….there would still be pressure for a bailout even if smaller banks were to fail.”
“For the government to say this is how large a bank should be - $500 billion, $600 billion – they’re not going to get it right,” he said.
Joe Hallett of The Columbus Dispatch contributed to this report.