This is a show-down between Wall Street and the voting public. Gretchen Morgenson at NY Times writes:
THERE’S a lot to like, if you’re a taxpayer, in the new bipartisan bill from two concerned senators hoping to end the peril of big bank bailouts. But if you’re a large and powerful financial institution that’s too big to fail, you won’t like this bill one bit.
The legislation, called the Terminating Bailouts for Taxpayer Fairness Act, emerged last Wednesday; its co-sponsors are Sherrod Brown, an Ohio Democrat, and David Vitter, a Louisiana Republican. It is a smart, simple and tough piece of work that would protect taxpayers from costly rescues in the future.
This means that the bill will come under fierce attack from the big banks that almost wrecked our economy and stand to lose the most if it becomes law.
For starters, the bill would create an entirely new, transparent and ungameable set of capital rules for the nation’s banks — in other words, a meaningful rainy-day fund. Enormous institutions, like JPMorgan Chase and Citibank, would have to hold common stockholder equity of at least 15 percent of their consolidated assets to protect against large losses. That’s almost double the 8 percent of risk-weighted assets required under the capital rules established by Basel III, the latest version of the byzantine international system created by regulators and central bankers.
This change, by itself, would eliminate a raft of problems posed by the risk-weighted Basel approach……
The outcome is far from clear. The financial muscle of Wall Street can buy a lot of influence on the Hill. But my guess is that they are too smart to incense voters by meeting the bill head-on. Instead they will attempt to delay with amendments and eventually turn it into an unwieldy 1000-page unenforcable monstrosity that no one understands. Much as they did with Dodd-Frank.
If they win, the country as a whole will suffer. Maybe not today, but in the inevitable next financial crisis if this bill does not pass.
Read more at Two Senators Try to Slam the Door on Bank Bailouts – NYTimes.com.
Obviously banks need to have proper capital adequacy requirements,and that in of itself should prevent another banking crisis like the one we’ve had. But if the banks did find themselves in another crisis, the government would need to bail them out regardless to prevent even further disaster. Hopefully proper prudential controls would completely prevent that from occurring of course.