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Elizabeth Warren, who by Senate tradition ought to be a meek, eyes-down freshman, turned in another stellar performance Wednesday at a Banking Committee hearing with Treasury Secretary Jack Lew in the hot seat.
Warren began by asking whether Treasury had changed its views on banks that were judged "too big to fail" back in 2008 since four of these institutions have grown 30 percent since then. “When we see the largest financial institutions getting bigger and bigger… it tells us that we are clearly not on the path to resolving too big to fail,” she said. She asked Lew:
“How big do the biggest banks have to get before we consider breaking them up? Do they have to double in size? Triple in size? Quadruple in size?”
Lew said it would not be a good idea to enact any new measures until Dodd-Frank, the Wall Street Reform and Consumer Protection Act, is fully implemented. That law will have its third birthday in July. You can see the exchange below and a somewhat longer version here.
The four banks Warren was speaking of are JPMorgan Chase, Bank of America, Citigroup and Wells Fargo. They're nearly $2 trillion larger now than they were when the financial crisis struck. With assets of $7.8 trillion, their combined assets are half the size of the entire U.S. economy and the banks hold more than half of America's $7 trillion in deposits.
In April, Democratic Sen. Sherrod Brown of Ohio and Republican Sen. David Vitter introduced a too-big-to-fail bill that would impose capital restrictions on banks as a proportion of the assets. For community and mid-sized banks, that would be eight percent. For the giants of $500 billion or more in assets, 15 percent. Subsidiaries and affiliates of banks would have to be separately capitalized.
In addition, the bill would limit the government's safety net to traditional banking operations not the risky investment practices that led to federal bailouts. At the same time, the bill would reduce regulations on community banks.
The Independent Community Bankers of America support the Brown-Vitter bill as do some current U.S. regulators. Not surprisingly, the bill is under attack by the usual suspects.
Originally posted to Meteor Blades on Wed May 22, 2013 at 12:08 PM PDT.