Sanders, Sherman Introduce Legislation to Break Up Too Big to Fail Financial Institutions

WASHINGTON, Oct. 3 – On the 10th anniversary of the Wall Street bailout, Sen. Bernie Sanders (I-Vt.) introduced legislation to break up the nation’s biggest banks and risky financial institutions in order to safeguard the economy and prevent another costly taxpayer bailout. Rep. Brad Sherman (D-Calif.) will introduce a companion bill in the House.

Today the six largest banks in America control assets equivalent to more than half the country’s GDP and the four largest banks are on average about 80 percent larger today than they were before the bailout. The legislation introduced Wednesday would cap the size of the largest financial institutions so that a company’s total exposure is no more than 3 percent of GDP, about $584 billion today.  

By applying a cap on the size of financial institutions, the bill would break up the six largest banks in the country: JP Morgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley. The bill would also address large non-bank financial service companies such ase Prudential, MetLife and AIG.

“No financial institution should be so large that its failure would cause catastrophic risk to millions of Americans or to our nation’s economic well being,” Sanders said. “We must end, once and for all, the scheme that is nothing more than a free insurance policy for Wall Street: the policy of ‘too big to fail.’”

“Too big to fail should be too big to exist,” said Sherman, who has advocated this position since 2009.  “Never again should a financial institution be able to demand a federal bailout.  Today they can claim: ‘if we go down, the economy is going down with us.’  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.”

In the 10 years since Wall Street caused the financial crisis and was bailed out by taxpayers, the five largest banks have raked in more than $583 billion in profits. The six biggest banks have a combined total exposure of over $13 trillion which exceeds 68 percent of our nation’s GDP.

Under the bill, entities that exceed the 3 percent cap would be given two years to restructure until they are no longer too-big-to-fail. These “Too Big to Exist” institutions would no longer be eligible for a taxpayer bailout from the Federal Reserve and could not use customers’ bank deposits to speculate on derivatives or other risky financial activities.

As a result, JPMorgan Chase and Bank of America would be forced to shrink to where the banks were in 1998.  Wells Fargo would go down in size to where it was in 2005. And Citigroup would shrink to where it was during the second term of Bill Clinton’s administration.

“The new Too Big to Fail, Too Big to Exist proposed legislation from Senator Bernie Sanders is short and to the point.  The largest banks and other highly leveraged financial institutions are simply too big – and pose a real danger to our continued economic recovery.  Make them break up into smaller pieces, bringing more competition, better service and lower risks for the American economy,” said Simon Johnson, former chief economist at the International Monetary Fund and current professor at the Massachusetts Institute of Technology.

The bill is supported by the AFL-CIO, Public Citizen, Americans for Financial Reform, Center for Popular Democracy Action and Demand Progress Action.

Experts supporting the bill include: Simon Johnson, former IMF chief economist, Robert Reich, UC Berkeley, Bob Hockett, Cornell Law School, Jennifer Taub, Vermont Law School, Nomi Prins, former investment banker, and Rep. Brad Miller, Roosevelt Institute.

To read the bill, click here.

To read a summary, click here.

To read a letter from experts supporting the legislation, click here.

To watch Sanders' announcement of the bill with Sherman and Johnson, click here.