With the roll-out of the much-ballyhooed "too big to fail" bill of Senators Sherrod Brown and David Vitter at an American Banker forum April 23, and its introduction in the Senate April 24, came the admission from both Senators: It doesn't break up or separate any banks from any non-banks, and is nothing like restoring the Glass-Steagall Act. It also doesn't prevent commercial banks from holding unlimited derivatives and securities exposures. If anything, it will help to block Glass-Steagall re-enactment, out of fear of Wall Street's money and the Obama White House's intense opposition.
The bill's title is the Terminate Bailouts for Taxpayer Fairness ("TBTF") Act. This is too cute by more than half. It borders on the ridiculous given the deranged, non-lending state of the U.S. banking system and the fact that the Dodd-Frank Act is moving from taxpayer bailouts to the more ominous "Cyprus-model bail-in", where customers' deposits are stolen en masse to capitalize a failing bank.
The Cleveland Plain Dealer, covering the April 24 announcement, reported that "the Senators said the bill would not actually break up any large banks." It does nothing, in fact, to change the incredible complexity of the largest bank holding companies, which now average 3,900 subsidiaries each, almost all of them dealing in securities, according to studies cited on the Senate floor by Brown.
Brown, in fact, said at the American Banker forum that "maybe later" he would join with Sen. Jeff Merkeley to introduce a bill to "really" shrink the biggest banks — with Glass-Steagall remaining a bridge too far even then. The tragedy of this is that Brown supports Glass-Steagall and knows it should be restored.
There were no other initiating sponsors announced for this TBTF Act; Vitter's office staff, contacted Wednesday afternoon, did not know of any, nor of a companion bill in the House.
While the Brown-Vitter bill has not yet appeared in a legislative text on the Library of Congress site, a summary of it released by Senator Brown indicated a few changes from the text which "leaked" on April 11. It remains predominantly a bill to raise bank capital requirements: on the six banks with more than $500 billion in assets, to 15% tangible equity; on other banks with over $50 billion in assets, to 8-9%; and on community banks, to a level to be determined by regulators. Vitter, in fact, in a seven-minute Bloomberg interview Wednesday morning, spoke of nothing but capital requirements relative to bank assets. Whether those assets must still include derivatives and off-balance-sheet structures, as in the April 11 draft, is not yet clear.
Brown's provision to prohibit FDIC insurance or Federal Reserve discount-window borrowing to non-commercial bank units, remains in the bill, along with restrictions on transfer of assets from uninsured to insured commercial units. These provisions alone hearken to the still-certain trumpet of Glass-Steagall.