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U.S.
Senator Sherrod Brown
Five
Years After Near Economic Collapse, Working to End Future Bailouts
Five
years ago, the collapse of Lehman Brothers put our economy on the
brink of collapse and jeopardized the savings and pensions of
millions of Americans.
The
Lehman Brothers collapse was significant for another reason as well.
Because the federal government bailed out other financial
institutions before and after Lehman’s failure, it set a threshold
for banks that are so large and interconnected that they would
receive extraordinary help from the government to enable them to
survive. Meanwhile, Ohio taxpayers are left paying for Wall Street’s
failures.
This
“too big to fail” designation still wreaks havoc on the safety
and soundness of our financial system. Five years after the Lehman
Brothers collapse, the biggest megabanks which were “too big to
fail” before the crisis have only gotten bigger. The four largest
behemoths, now ranging from $1.4 trillion to $2.4 trillion in assets,
are the result of 37 banks merging 33 times. In 1995, the six biggest
U.S. banks had assets equal to 18 percent of GDP. Today, they are
about 63 percent of GDP. They now have twice the combined assets of
the rest of the top 50 U.S. banks.
This
enormous growth is aided in large part by an implicit government
guarantee awarded by virtue of these megabanks “too big to fail”
status. In other words, these same Wall Street megabanks which
received bailouts from taxpayers in 2009 also receive taxpayer-funded
advantages today simply because of they are deemed “too big to
fail”.
This
taxpayer-supplied subsidy is wrong, and it puts community banks in
Ohio at a competitive disadvantage. These megabanks have access to
cheaper funding and more favorable borrowing terms than dependable
Main Street institutions – like Huntington Bank or The Peoples Bank
in Coldwater, Ohio – simply because the market knows that the
government would choose to bail out the Wall Street megabanks if they
again reach the point of collapse.
As I
visit community banks throughout Ohio, I meet community bank
executives who tell me about how they are unfairly disadvantaged when
competing against Wall Street megabanks. Millions of families and
small businesses depend on their community banks for their savings
accounts, home mortgages, and business loans. Community banks help
create countless jobs and provide safe and reliable financing options
to Ohio’s families. We should be supporting our community bankers,
not creating an unlevel playing field that favors Wall Street.
That’s
why my Republican colleague, Senator David Vitter from Louisiana, and
I introduced bipartisan legislation to address this “Too Big to
Fail” problem. The Terminating Bailouts for Taxpayer Fairness Act
(TBTF Act) would ensure that financial institutions have adequate
capital to protect against losses. Simply put, the bill would ensure
that if Wall Street banks are going to make risky gambles, they do it
with their own money. By requiring the biggest banks to have more of
their own capital on hand to cover their losses, taxpayers won’t be
asked to bail them out, again. The legislation would also limit the
government safety net to traditional banking operations, protecting
commercial banks rather than risky, investment banking activities.
Finally, the TBTF Act would also provide regulatory relief for
community banks, allowing them to compete with the mega institutions.
Taking the appropriate steps will lead to more competition, increase
lending, and provide incentives for banks to do business the right
way. Just about the only people who will not benefit from my plan are
a few Wall Street executives.
On
the five year anniversary of Lehman Brothers’ collapse, we must
ensure that Ohio taxpayers are not the safety net for risky bets made
on Wall Street. Americans do not want us to wait for another crisis
to take action.
Sincerely,
Sherrod
Brown
U.S.
Senator
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