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Are We Returning to a Path of Owing Our Souls to the Company Store?

The Center for American Progress recently completed two related reports that are read-worthy:

Cash for Homes: Policy Implications of an Investor-Led Housing Recovery

Across the country, investors have been taking advantage of the nation’s foreclosure crisis to purchase homes at bargain prices, often beating out potential homeowners who have been a bit hesitant to purchase, frequently choosing to sideline themselves. In July 2013, cash-on-hand investors bought about 55 percent of the homes sold in Las Vegas and numerous properties in other major metropolitan areas such as Miami, Phoenix, and Prince George’s County, Maryland, a suburb of Washington, D.C.

Investors can play a key role in a housing recovery. By absorbing excess inventory, they establish a floor for home prices and jump-start appreciation. Responsible investors can also offer quality, affordable rental opportunities to families who may be locked out of home ownership due to foreclosure or lost wealth from the recession.

But while they can support communities, irresponsible investors can also destroy them by allowing properties to sit empty, declining to bring rental properties up to code, and neglecting tenants’ needs in instances where the home is occupied. Additionally, investors that buy large quantities of properties in a single area can cause prices to overheat and increase market volatility. Conversely, if institutional investors following a set business plan sell numerous properties in the same time frame, prices in those neighborhoods could decline again.

Read this full PDF report here

When Wall Street Buys Main Street
The Implications of Single-Family Rental Bonds for Tenants and Housing Markets

In October 2013, an institutional investor created the first triple-A-rated, mortgage-backed security supported by revenue from single-family rental properties, a development that may offer even lower-cost financing to institutional buyers than has been available thus far through bank credit lines. A mortgage-backed security is created by pooling assets together and then selling interests in that pool to investors, who then receive regular payments from the asset pool. This process provides access to a much larger pool of investors than would otherwise be feasible, increasing liquidity and generally providing a less expensive source of funding than traditional borrowing from banks or private investors.

In this instance, a subsidiary of the private equity firm Blackstone took out a $479.1 million loan from Deutsche Bank that was secured by a pool of more than 3,000 single-family rental homes. The loan was then turned into a security that was purchased by investors, who now receive monthly rental cash payments from the homes. If the loan is not repaid, the trustee—the legal representative of the bondholders—has the right to seize the homes.

The emergence of a new form of mortgage-backed securities tied to single-family rentals is certain to have an impact on the housing market, communities, and tenants. Analysts predict that the funding of single-family rental acquisitions through securitization will likely become a dominant model quickly; American Homes 4 Rent and Colony American Homes, two new single-family rental firms, are reportedly preparing to launch single-family rental bonds in the coming months. The market for this new asset class is expected to top $70 billion per year by 2016, on par with the bond financing for apartment buildings, casinos, and commercial real estate for this year. While institutional investors only represent a fraction of those in the housing market—mid-sized companies and small mom-and-pop investors who own less than 10 properties are currently far more prevalent in most markets—securitization may begin to shift this balance.

Depending on the success of this new asset class, investor appetite for these types of bonds may boost the size and scope of this relatively new and untested industry to a level that may not be sustainable, either because the industry does not have the capacity to manage thousands of new homes or because a significant increase in purchases inflates home prices.

Read the full PDF Report here.


This material above was created by the Center for American Progress Action Fund. It was created for the Progress Report, the daily e-mail publication of the Center for American Progress Action Fund. Click here to subscribe.

39 Days left in this Congressional Session

Congress is back on today from August recess, and it faces two big issues in its first full week of work:  whether to approve military action in Syria and a 2014 federal spending.

Authorizing Military Action in Syria 

On Aug. 31, the President sent Congress draft legislation that would authorize use of the US military “in connection with the conflict in Syria.” In the past week, more than 2,700 POPVOX users weighed in on the President’s proposal — overwhelmingly in opposition — and even the media took note: Check out POPVOX on NBC news and The Hill.

Last week, the Senate Foreign Relations Committee approved its resolution to authorize the limited and specified use of the US Armed Forces. The resolution allows up to 90 days of military action against Syria, and due to a bipartisan amendment in committee, it allows the Administration to take steps to change the “momentum on the battlefield” to help Syrian rebels.  Weigh in on the Senate’s resolution at POPVOX.

  • The resolution passed the Senate Foreign Relations Committee in a close 10-7 vote, and the Obama Administration will be pushing Senators to support it before this week’s vote. It’s not yet clear if the Senate can pass the resolution given scant public support for a new military campaign, even one that the Administration says would be very limited and would not involve ground troops. Meanwhile, House leaders have indicated they would let the Senate act first, and might consider Syria language later in the month. There’s also a chance the House doesn’t vote at all, particularly if the Senate fails to pass its language.

Learn more and find other bills related to Syria in PopVox’s Issue Spotlight.

2014 Federal Spending 

The House will take the lead on 2014 spending, by considering a short-term continuing resolution. The plan is to allow the government to operate for the first few months of the new fiscal year, so Congress can spend time working on a debt ceiling agreement. As of Friday, the House had not revealed the text of the continuing resolution it hopes to pass.

Also in the House

The No Subsidies Without Verification Act (HR 2775): would prohibit any federal subsidies for Obamacare’s health insurance exchanges from being provided until there is a system in place that verifies eligibility as outlined by current law, according to the bill sponsor.

  • HR2775 reflects Republican disapproval of an Obama administration decision not to verify eligibility of people receiving subsidies. Many Republicans said failing to see if people qualify for these subsidies will only lead to more demand for the payments, which would drive up the costs of Obamacare.

Finally, the House will consider several suspension bills early in the week, including several Senate land use bills:

As you can see, Immigration Reform is nowhere on the House agenda at this point.

The President’s Housing Plan–What You Need to Know

The White House

President Obama took Wednesday morning to answer your questions on housing during an online interview, and it’s worth a watch. It’s part of his push for a more secure foundation for middle-class home ownership.

We want to make sure you’ve got the facts about President Obama’s plan, and the resources that are already available for homeowners.

Here’s what you need to know: The President’s plan involves simple, commonsense steps that folks on both sides of the aisle agree on. That means making it easier for families to refinance, reforming the system so families aren’t on the hook for the bad behavior of certain mortgage lenders, and helping folks who aren’t homeowners yet get affordable housing that’s right for them.

Click here to find out more about President Obama’s plan.

And while  we need to do more, there are some resources we’ve already helped make available:

  • MakingHomeAffordable.gov is there to help get you mortgage relief and avoid foreclosure. If you or someone you know needs assistance, they can help you find programs that can help — both online and through a free, 24/7 support line that can connect you with housing experts.

Take a minute to share this information with your family and friends, so that people who might not know about these resources can start getting help if they need it.

Learning Deficit? — GOP: “Let Detroit Go Bankrupt”

PBGCGee, I’ll bet you thought that when Romney lost the election, his philosophies died along with the end of that race.  You might also have hoped that the GOP might have learned that a clear majority of Americans didn’t care for their brand of leadership.  Well, you would be wrong.  That famous Romney quote, “Let Detroit go bankrupt” has risen once again from the dead and GOP senators like Sen. Orrin Hatch (R-UT) are espousing legislation that would ensure Detroit does go bankrupt and that they get absolutely NO federal help (other than, of course, to ensure the big money interests get their rake right off the top) as Detroit goes through bankruptcy.

Judicial activity at both the State and Federal levels presently seems skewed in favor of large investors and against public workers (teachers, police, firemen, etc.) who face losing pensions for which they worked their entire lives.  Loss of their main source of income will force those pensioners onto State and Federal safety net programs.  Please keep in mind that, while the Pension Benefit Guarantee Corporation insures private-sector pensions, it does not insure state, county, or city plans. So, when there’s no money in the bankruptcy settlement to pay pensions, Detroit’s public worker pensioners may find themselves penniless, lest they have alternate income sources.  That’s because,according to Herb Perone from Perone Communications, “there is no equivalent to the PBGC for public sector plans. Public sector plans are backed by the full faith and credit of the state.” And of course, Detroit is bankrupt.  Thus, the GOP leadership of Michigan has no faith that those retirees might vote for them, so in their book, they’re expendable. There are bigger corporate fish to fry instead, through which they can secure their political futures.

Also keep in mind, this bankruptcy filing and potential pension filching is occurring at the same time that the House of Representatives just passed a bill totally zeroing out all funding for SNAP funds (food stamps) and when they’re pumping up their chests boasting to once again shut down government if they’re not allowed to kill Obamacare, the EPA, the Consumer Protection Bureau and Dodd-Frank financial reform so they can let Wall Steet to do whatever damage they chose to create on any given day to the overall worldwide economy.

This vision of selfish anarchy and governmental impotence espoused by the GOP has to end.  We have got to get active, we’ve got to get involved, and we’ve got to get them out of our government both at the State and Federal levels if our nation is to survive.  We need to actively work at removing these vermin from public office.  If we don’t, it will be the end of our great nation, and not even the “Lord” will be able help us if the GOP manages to succeed in their efforts to dismantle the America in which we grew up.

Don’t Tax My Credit Union

Apparently, #MoveYourMoney is hurting the bottomline of the big banks and they’re starting to pull the strings on the Congressmen they bought in this last election.  This 30-second spot focuses on the credit union mission, how credit unions are rooted in their communities and why credit unions are tax-exempt — and must stay that way. Don’t Tax My Credit Union!

House GOP Gives Runaway CEO Pay Gets a Free Pass

The House Financial Services Committee has just moved to repeal the only statutory provision now on the books that puts real heat on overpaid top executives.

— by Sam Pizzigati

Sam Pizzigati

Only 10% of Americans now have confidence in Congress, Gallup informs us. No other major American institution has ever had an approval rating this low.

But public confidence in Congress would probably sink even lower if average Americans knew more about what our lawmakers are actually doing. The latest case in point: the steady progress of H.R. 1135, the “Burdensome Data Collection Relief Act.”

This particular piece of legislation speaks to an ongoing frustration in America’s body politic: CEO pay. Most Americans think corporate executives are grabbing far too much compensation.

Not the members of the House Financial Services Committee. By a 36-21 margin, they’ve just voted to repeal the only statutory provision now on the books that puts real heat on overpaid CEOs. The full House, observers expect, will shortly endorse this repeal.

The specific provision 31 Republicans and five Democrats voted to overturn — section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act — imposes a new disclosure mandate on corporations.

Under Dodd-Frank, as enacted into law, major companies must annually reveal the ratio between what they pay their CEOs and what they pay their median — most typical — workers.

Pizzigati-Congress-arcticpenguinCorporate pay reformers consider this ratio to be crucial information for reining in executive excess. If Americans could see — and compare — the exact CEO-worker pay ratio from one corporation to another, the reformers believe, the resulting negative publicity on the corporations with the widest pay gaps might just discourage excessive future executive compensation.

And if corporations ignored this negative publicity, Dodd-Frank’s disclosure mandate could serve as a stepping stone to tougher reforms. Lawmakers could, for instance, set a specific CEO-worker pay multiple as the nation’s preferred corporate compensation standard and deny tax breaks — or government contracts — to corporations that pay execs above that standard.

Pay ratio disclosure clearly has the potential to help extinguish what one Forbes analyst calls “the out of control wildfire” that executive pay has become. But the mandate hasn’t so far extinguished anything.

Corporate lobbyists have seen to that. They’ve been pressuring the Securities and Exchange Commission, the federal agency that must issue regulations before any new mandate over corporate behavior can be enforced. The agency has so far issued no regulations on CEO-worker pay disclosure. And nearly three years have gone by since Dodd-Frank initially worked its way into law.

America’s corporate leaders, meanwhile, don’t want to have to rely solely on their ability to intimidate the SEC. They’ve also orchestrated a congressional drive to simply repeal the Dodd-Frank pay disclosure mandate outright.

How can lawmakers who carry Corporate America’s water possibly defend repealing a measure as common-sense as pay ratio disclosure? Easy. They simply paint corporations as the victims of overzealous government bureaucrats out to drown them in burdensome — and meaningless — paperwork.

These repealers are doing their best to trivialize Dodd-Frank’s pay ratio mandate. Today CEO-worker pay disclosure, joked House Financial Services chair Jeb Hensarling (R-TX) in one recent debate — tomorrow a mandate that companies calculate the ratio of healthy to unhealthy drinks in company soda machines.

“I assume,” Hensarling smirked, “there is an infinite number of ratios some investors would find helpful to their decisions.”

Serious business analysts see executive-worker pay ratios as anything but trivial. Peter Drucker, the father of modern management science, believed that any corporations that had executives making over 20 or 25 times worker pay are placing employee morale and productivity at risk.

A host of public interest groups, organized in Americans for Financial Reform, also make a similar case for pay gap disclosure.

To sum this all up, the Dodd-Frank law’s section 953(b) was duly enacted into law, then ignored and never enforced, and now stands in jeopardy of getting repealed into oblivion. What can we learn from the sad, still-unfolding tale?

Maybe this: In a democracy, elected leaders represent the people. In a plutocracy, like ours, elected leaders represent the people — and listen to the rich.


OtherWords columnist Sam Pizzigati is an Institute for Policy Studies associate fellow. His latest book is The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class.  OtherWords.org  Photo credit to arcticpenguin/Flickr

This Week in Congress

Congress returns from recess, and will deal with the student loan interest rate this week, along with a spending bill for federal energy and water programs.

In the Senate —

The Senate adjourned in late June without passing a bill dealing with student loans, but is hoping to make progress this week. Two bills will be considered:

  • The Keep Student Loans Affordable Act (S 1238): would lower the 6.8% interest rate on subsidized student loans back down to 3.4% for another year.
  • - The Bipartisan Student Loan Certainty Act (S 1241): would set the rate at that of the 10-year Treasury note plus 1.85 percent. -

The Scoop: Neither of these bills has yet to be summarized on THOMAS.  The bipartisan bill is purported to be much closer to a version passed by the House in June. Passing it in the Senate would likely set up a House-Senate conference that could work to reach an agreement on a final bill. Passage of the one-year extension, however, could delay progress on the issue further, as House Republicans have indicated they are not likely to advance a simple extension.

In the House — 

In the House, members will deal with a major spending bill for 2014:

- The Energy and Water Development and Related Agencies Appropriations Act(HR 2609):  This bill spends about $30 billion on energy and water programs in the federal government, and is nearly $3 billion below the spending level for 2013.

The House will also consider:

  • The National Strategic and Critical Minerals Production Act (HR 761): aimed at boosting the production of strategic “rare earth” elements. (Summary on Thomas)
  • The FOR VETS Act (HR 1171): donating federal property to veterans’ organizations. The “Formerly Owned Resources for Veterans to Express Thanks for Service Act of 2013″ or the “FOR VETS Act of 2013″ if passed, would authorize the transfer of federal surplus property to a state agency for distribution, through donation, within the state, for purposes of education or public health for organizations whose membership comprises substantially veterans, and whose representatives are recognized by the Secretary of Veterans Affairs (VA) in the preparation, presentation, and prosecution of claims under laws administered by the Secretary.
  • The Financial Competitive Act (HR 1341): requiring a study of differences in derivative markets in the U.S. and overseas.   I call this one the “Pass the Buck” law, in that it would
    • Direct the Financial Stability Oversight Council to study and report to Congress on the likely effects that differences between the United States and other jurisdictions in implementing the derivatives credit valuation adjustment capital requirement would have on: (1) U.S. financial institutions that conduct derivatives transactions and participate in derivatives markets, (2) end users of derivatives, and (3) international derivatives markets.
    • Require the study to recommend steps Congress and the constituent agencies of the Council should take to: (1) minimize any expected negative effects on U.S. financial institutions, derivatives markets, and end users; and (2) encourage greater international consistency in implementation of internationally agreed capital, liquidity, and other prudential standards.
  • The Audit Integrity and Job Protection (HR 1564): easing regulations that require public companies to rotate their external auditors. This bill would:
    • Authorizes the Secretary of the Interior, through the National Park Service (NPS), to make improvements to a support facility, including a visitor center, for a National Historic Site administered by the NPS if such project: (1) is conducted within the agency’s existing budget, (2) is subject to a 50% non-federal cost sharing requirement, and (3) is conducted for a unit of the NPS which has the authority to establish a support facility outside the park’s boundary.
    • Allows the NPS to operate and use all or part of a support facility, including a visitor center, for such a Site: (1) to carry out the duties associated with the administration and support of such Site, and (2) only in situations where there is an agreement between the Secretary and the commissioners of the county or parish in which the facility is located.

Related articles

In Major Blow To Consumers, Supreme Court Protects Mega-Corporations From Liability

By Nicole Flatow on Jun 20, 2013 at 12:10 pm

NicoleFlatowIn case it wasn’t clear already, the U.S. Supreme Court hammered home Thursday morning that it will protect the rights of corporations to force arbitration over the individuals’ access to the court system at any expense.

 In a 5-3 ruling with Justice Sonia Sotomayor recused, Justice Antonin Scalia eviscerated almost any opportunity small merchants have to challenge alleged monopolistic practices by American Express in their credit card agreements.

Sound familiar? Earlier this term, the court turned back on procedural grounds a lawsuit alleging monopolistic practices by Comcast. A week after that, they turned back the claims of workers to challenge employer practices as a class. And in 2011, they issued one of the worst blows to consumer rights in years when they held that consumers challenging $30 fees could not sue together as a class. In each of these cases, the court’s procedural rulings mean the parties may never get to argue about whether these corporations actually violated the law. And as a consequence, these corporations may never be held accountable.

With Thursday’s ruling, the court added small businesses to the list of aggrieved parties whose access to the courthouse has been foreclosed by boilerplate contracts that prohibit parties from filing their challenge as a class, or from otherwise alleviating the immense cost of filing their claims individually. This time, the litigants were small businesses taking on American Express, and their lawyer was none other than conservative powerhouse Paul Clement. Clement has argued many of the major conservative court wins of the past few years, and his argument on the side of the plaintiffs was probably the last best shot at curbing the Roberts Court’s total perversion of the Federal Arbitration Act.

As in the AT&T case, the plaintiffs here argued that the only way they could challenge the policy of mega-corporation American Express was by banding together as a class and pooling their resources. But consumers’ claims in AT&T were struck down on a different rationale, that their state law claims were preempted by the Federal Arbitration Act. This time, the plaintiffs argued that because their antitrust claims are federal , they are protected by the principle of “effective vindication,” meaning that where an arbitration clause effectively immunizes otherwise meritorious federal claims, plaintiffs are entitled to vindication of their actual rights. To show that that the arbitration clause would make any challenge prohibitively expensive, they deployed formal affidavits by economists attesting to the immense cost of these claims — “’at least several hundred thousand dollars, and might exceed $1 million’,” while the maximum recovery for an individual plaintiff would be $12,850, or $38,549 when trebled,” meaning they could not afford to launch their claims without the ability to file them together.

No matter, said the majority. In AT&T, “[w]e specifically rejected the argument that class arbitration was necessary to prosecute claims ‘that might otherwise slip through the legal system’.” This case is about federal law vindication and AT&T was about state law preemption, but as Justice Elena Kagan wrote in dissent, “to a hammer everything looks like a nail.” Joined by Justices Ruth Bader Ginsburg and Stephen Breyer, Kagan explains the case this way:

Here is the nutshell version of this case, unfortunately obscured in the Court’s decision. The owner of a small restaurant (Italian Colors) thinks that American Express (Amex) has used its monopoly power to force merchants to accept a form contract violating the antitrust laws. The restaurateur wants to challenge the allegedly unlawful provision (imposing a tying arrangement), but the same contract’s arbitration clause prevents him from doing so.

That term imposes a variety of procedural bars that would make pursuit of the antitrust claim a fool’s errand. So if the arbitration clause is enforceable, Amex has insulated itself from antitrust liability—even if it has in fact violated the law. The monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse.

And here is the nutshell version of today’s opinion, admirably flaunted rather than camouflaged: Too darn bad.That answer is a betrayal of our precedents, and of federal statutes like the antitrust laws.

Today’s ruling was yet another point in the Chamber of Commerce’s remarkable tally of wins before the Roberts Court, and another chance for the most business-friendly justices in 65 years to side with their friends.


This material [the article above] was created by the Center for American Progress Action Fund. It was created for the Progress Report, the daily e-mail publication of the Center for American Progress Action Fund. Click here to subscribe.

Victims Of Foreclosure Fraud Can’t Cash Reimbursement Checks

— by Sarah Edelman, Guest Blogger on Apr 17, 2013 at 3:48 pm

Could federal regulators and their cast of private contractors possibly do a worse job of getting relief to families who were wronged during the foreclosure crisis?

First, private contractors botched their initial review of banks’ foreclosure files. Then, the Office of the Comptroller of the Currency cut a bad deal with mortgage servicers that pays very little – about two-thirds of borrowers will receive only $300.

Finally, adding insult to injury, borrowers are having trouble cashing the disappointingly small checks!

Apparently, in order for borrowers to cash the compensation checks they received, their bank must contact Rust Consulting, the company handling the distribution of compensation funds for the U.S. government in order to verify the checks are cashing. However, when these banks followed typical protocol and contacted the bank issuing the checks, Huntington National Bank, the issuing bank was unable to verify and give approval to cash the check.

In the grand scheme of things, this bureaucratic slip-up can be resolved fairly easily, and the Federal Reserve has assured the public that borrowers should be able to access their compensation going forward. However, this most recent debacle underscores how this entire process has failed millions of families who have already lost their homes and savings during the foreclosure crisis.

A major problem throughout this process has been poor communication and outreach to borrowers. Last summer, the General Accountability Office reprimanded the OCC for ineffective outreach to more than 4 million borrowers who could be eligible for compensation. What’s more, the closed review process by the bank contractors – for which reviewers were paid more per hour than most borrowers will end up getting in total compensation – offered borrowers no opportunity to provide additional information as the contractors were determining whether or not they were wronged and if so, the amount of compensation they were owed.

As that review process became increasingly costly and bogged down, the OCC made a deal with 13 banks which, yet again, provides little meaningful redress to the vast majority of those whose foreclosure were mishandled.

Perhaps it could be amusing – or even inspire a comedy TV show – if a small-town sheriff was bungling its affairs this badly. But it’s no laughing matter when the primary federal regulator of big-bank safety and soundness and its high-priced contractors look like the Bad News Bears.

Our guest blogger is Sarah Edelman, a Policy Analyst at the Center for American Progress Action Fund.


This material [the article above] was created by the Center for American Progress Action Fund. It was created for the Progress Report, the daily e-mail publication of the Center for American Progress Action Fund. Click here to subscribe.

Too Big to Jail?

— an Op-Ed by Senator Bernie Sanders

We are supposed to be a country of laws. The laws should apply to Wall Street as well as everybody else. So I was stunned when our country’s top law enforcement official recently suggested it might be difficult to prosecute financial institutions that commit crimes because it may destabilize the financial system of our country and the world.

“I am concerned,” Attorney General Eric Holder told the Senate Judiciary Committee, “that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if we do prosecute — if we do bring a criminal charge — it will have a negative impact on the national economy, perhaps even the world economy.”

The attorney general was talking about some of the same financial institutions that received billions, and in some cases trillions, of dollars in taxpayer bailouts after their greed, recklessness and illegal behavior plunged the country into a terrible recession. Over my opposition, Congress approved a $700 billion taxpayer bailout of financial institutions that were on the brink of collapse which some in Congress considered “too big to fail.”

In addition, the Federal Reserve provided over $16 trillion in total financial assistance to these same institutions during the financial crisis (which only became public after an amendment I inserted into the Dodd-Frank Wall Street Reform and Consumer Protection Act requiring the Fed to disclose this information).

The attorney general’s view seems to be that if you are just a regular person and you commit a crime, you go to jail. But if you are the head of a Wall Street company, your power is so great that a prosecution could have destabilizing consequences with national or even worldwide implications.

In other words, we have a situation now where Wall Street banks are not only too big to fail, they are too big to jail. That view is unacceptable.

The attorney general’s troubling acknowledgement has revived interest in an idea that is drawing more and more support. It is time to break up too big to fail financial institutions.

The 10 largest banks in the United States are bigger today than they were before a taxpayer bailout following the 2008 financial crisis.

U.S. banks have become so big that the six largest financial institutions in this country (J.P. Morgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley) today have assets of nearly $9.6 trillion, a figure equal to about two-thirds of the nation’s gross domestic product. These six financial institutions issue more than two-thirds of all credit cards, over half of all mortgages, control 95 percent of all derivatives held in financial institutions and hold more than 40 percent of all bank deposits in the United States.

I will soon introduce legislation that would give the Treasury secretary 90 days to compile a list of commercial banks, investment banks, hedge funds and insurance companies that the Treasury Department determines are too big to fail. The affected financial institutions would include “any entity that has grown so large that its failure would have a catastrophic effect on the stability of either the financial system or the United States economy without substantial government assistance.” Within one year after the legislation becomes law, the Treasury Department would be required to break up those banks, insurance companies and other financial institutions identified by the secretary.

Breaking up the too big to fail financial institutions is a notion that has drawn support from some leading figures in the financial community. Richard Fisher, president of the Dallas Federal Reserve Bank, wrote this: “The safer the individual banks, the safer the financial system. The ultimate destination — an economy relatively free from financial crises — won’t be reached until we have the fortitude to break up the giant banks.” James Bullard, the head of the St. Louis Fed, also weighed in. “I do kind of agree that ‘too big to fail’ is ‘too big to exist.’” Thomas Hoenig, the former Kansas City Fed president, was an early supporter of the idea of breaking up big U.S. banks. “I think [too big to fail banks] should be broken up. And in doing so, I think you’ll make the financial system itself more stable. I think you will make it more competitive, and I think you will have long-run benefits over our current system, which leads to bailouts when crises occur.”

In my view, no single financial institution should be so large that its failure would cause catastrophic risk to millions of American jobs or to our nation’s economic well-being. No single financial institution should have holdings so extensive that its failure could send the world economy into crisis. And, perhaps most importantly, no institution in America should be above the law. We need to break up these institutions because of the tremendous damage they have done to our economy.

If an institution is too big to fail, it is too big to exist.