WASHINGTON, May 6 – Sen. Bernie Sanders (I-Vt.) today introduced legislation to break up the nation’s biggest banks in order to safeguard the economy and prevent another costly taxpayer bailout. Rep. Brad Sherman (D-Calif.) proposed a companion bill in the House.
“No single financial institution should have holdings so extensive that its failure could send the world economy into crisis,” Sanders said. “If an institution is too big to fail, it is too big to exist.”
The biggest banks in the United States are now 80 percent bigger than they were one year before the financial crisis in 2008 when the Federal Reserve provided $16 trillion in near zero-interest loans and Congress approved a $700 billion taxpayer bailout.
“Never again should a financial institution be able to demand a federal bailout,” Sherman said. “They claim; ‘If we go down, the economy is going down with us,’ but by breaking up these institutions long before they face a crisis, we ensure a healthy financial system where medium-sized institutions can compete in the free market.”
The 2008 financial crisis had a devastating impact on the U.S. economy. It cost as much as $14 trillion, the Dallas Federal Reserve calculated. The Government Accountability Office pegged the cost at $13 trillion. The Congressional Budget Office estimated that the crisis nearly doubled the national debt and cost more than the Bush tax cuts and the wars in Iraq and Afghanistan combined.
The six largest U.S. financial institutions today have assets of some $10 trillion, an amount equal to almost 60 percent of gross domestic product. They handle more than two-thirds of all credit card purchases, control nearly 50 percent of all bank deposits, and control over 95 percent of the $240 trillion in derivatives held by commercial banks.
The Sanders and Sherman legislation would give banking regulators 90 days to identify commercial banks, investment banks, hedge funds, insurance companies and other entities whose “failure would have a catastrophic effect on the stability of either the financial system or the United States economy without substantial government assistance.”
The list would have to include Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State Street and Wells Fargo. These eight institutions already have been deemed “systemically important banks” by the Financial Stability Board, the international body which monitors the global financial system. Under the legislation, the U.S. Treasury Department would be required to break up those and any other institutions deemed too big to fail by the treasury secretary. Any entity on the too-big-to-fail list would no longer be eligible for a taxpayer bailout from the Federal Reserve and could not use their customers’ bank deposits to speculate on derivatives or other risky financial activities.
To read Sanders’ statement at the news conference, click here.