Another banking scandal could give the bill a burst of momentum. Although regulators will oppose it because it dictates capital requirements and scraps the Basel III process, which could damage international negotiations, big banks are very concerned about the bill — for good reason. The history of banking policy is littered with ideas that once seemed radical and then were quickly embraced after a precipitating event left lawmakers looking for a response. Example = Elizabeth Warren's idea for a consumer protection agency was quickly dismissed, but 3 years later Dodd-Frank created the Consumer Financial Protection Bureau. Crises motivate Congress to act. Lawmakers often look to bills that are sitting nearby for inspiration. If another bank scandal hits the Brown-Vitter bill could suddenly look very appealing.
Vitter-Brown could become part of other legislation. With some of its central tenets passing more easily. The main thrust of Brown-Vitter is capital, requiring those below $500 billion of assets to hold 8%, and those over to hold 15%. Those numbers may be too high for Congress, but lawmakers could embrace the call for tougher capital standards. The bill also includes a backdoor restoration of the Glass-Steagall Act, which separated banking from insurance and securities. Vitter-Brown would restrict affiliate transactions between a holding company's bank subsidiaries and its non-banking ones. FDIC Vice Chair Tom Hoenig is adamant that this is key to ending "too big to fail."
Regulators could use the bill as cover. If the bill attracts significant support, it could give regulators more leeway to pursue higher capital and other regulatory requirements. Fed Board Gov. Jeremy Stein says regulators are prepared to ratchet up capital requirements until they change the size and complexity of the largest banks. Other regulators are also pushing to raise the leverage ratio as part of U.S. implementation of Basel III. The more support that lawmakers show for raising capital requirements, the more power they give regulators that are already pushing for such changes.
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Vitter-Brown could become part of other legislation. With some of its central tenets passing more easily. The main thrust of Brown-Vitter is capital, requiring those below $500 billion of assets to hold 8%, and those over to hold 15%. Those numbers may be too high for Congress, but lawmakers could embrace the call for tougher capital standards. The bill also includes a backdoor restoration of the Glass-Steagall Act, which separated banking from insurance and securities. Vitter-Brown would restrict affiliate transactions between a holding company's bank subsidiaries and its non-banking ones. FDIC Vice Chair Tom Hoenig is adamant that this is key to ending "too big to fail."
Regulators could use the bill as cover. If the bill attracts significant support, it could give regulators more leeway to pursue higher capital and other regulatory requirements. Fed Board Gov. Jeremy Stein says regulators are prepared to ratchet up capital requirements until they change the size and complexity of the largest banks. Other regulators are also pushing to raise the leverage ratio as part of U.S. implementation of Basel III. The more support that lawmakers show for raising capital requirements, the more power they give regulators that are already pushing for such changes.
Why Big Banks Are Losing the Battle Against Breakups
Below is an American Banker video interview addressing the growing number of calls for big banks to split up. For the first time since the financial crisis, shotgun breakups are becoming a very real possibility.
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