by Nate Wooley | April 25, 2013 10:36 am
A new piece of legislation is aimed at ending banks’ status of “Too Big to Fail.”
On Wednesday, two senators — Sherrod Brown (D-Ohio) and David Vitter (R-La.) — introduced legislation aimed at making banks keep sufficient reserves on hand to prevent any future need for government rescue, The Washington Post reports.
The act also hopes to do away with any advantage large banks might have through lenders giving them preferred interest rates through the assumption that — should they default — they will be bailed out. The senators say that implicit guarantee makes the banks choose more risky strategies than they otherwise would.
As it’s currently written, the legislation would require the banks with more than $500 billion in assets to maintain capital equal to 15% of assets. Banks with between $50 billion and $500 billion in assets would be required to maintain 8% of their assets. Banks with holdings below $50 billion would be exempt from the new law.
Brown said the legislation “presents Wall Street megabanks with a clear choice: Either have enough of your own capital to cover your own losses or downsize until you are no longer a risk to taxpayers.”
The opinions contained in this column are solely those of the writer.
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