TBTF: Terminating Bailouts for Taxpayer Fairness Act


“It is a smart, simple and tough piece of work that would protect taxpayers from costly rescues in the future. This means that the bill will come under fierce attack from the big banks that almost wrecked our economy and stand to lose the most if it becomes law.”

-Gretchen Morgenson, NYT

“It’s clear there’s too much Wall Street in this administration.”

Sen. Sherrod Brown (D-OH)


This weekend, we saw a flurry of reporting on a new bi-partisan proposal introduced by Senators Sherrod Brown, an Ohio Democrat, and David Vitter, a Louisiana Republican.

This is a very simple, straight forward piece of legislation that mandates adequate capital reserves, eliminates the opportunity for bankers to hide liabilities off balance sheet or game the various asset classes:

-Stricter capital requirements on megabanks, defined as institutions with over $500 billion in assets.
-Six U.S. banks — JPMorgan Chase., Citigroup, Goldman Sachs, Morgan Stanley, Bank of America and Wells Fargo — meet the TBTF criteria.
-Eliminates risk-weights as part of a capital assessment (less reliance on unreliable ratings).
-Does not rely on ratings agency grades.
-Removes off-balance-sheet assets and liabilities as different class — they are treated as if they were on-balance sheet.
-Requires derivatives positions to be included in a bank’s consolidated assets.
-Requires capital cushion that a bank hold be liquid
-Mandates capital measures be more transparent
-Eliminates Basel III as a regulatory requirement
-Restores competition to industry by removing competitive disadvantages mega banks have over smaller and regional community bankers.

For those people who complain Dodd-Frank is too complex, let’s see how they like “the new simplicity.”

Brown-Vitter faces two large, deeply intertwined opponents: Wall Street banks and the Obama administration. The pushback has already begun. For the banker’s views, we go to the NYT’s Dealbook. It is overseen by Andrew Ross Sorkin, author of Too Big to Fail and now a CNBC morning anchor. As seen in its recent headline, The Seductive Simplicity of a New Banking Bill, Dealbook is a touch skeptical of the legislation, but notes “in a major way, the Brown-Vitter bill effectively sidesteps the need for reliable regulators. It simply says that all big banks would have to set up a buffer for potential losses – called capital in the industry – that is equivalent to 15 percent of their total assets.”

Simon Johnson takes a different tack. He warns that there are two competing narratives about financial-reform efforts, with the financial-sector executives claiming that “all necessary reforms have already been adopted.” Johnson pushes back on this, noting “the world’s largest banks remain too big to manage and have strong incentives to engage in precisely the kind of excessive risk-taking that can bring down economies. Last year’s “London Whale” trading losses at JPMorgan Chase are a case in point.

The best read of the proposal comes from FDIC Vice-chairman Thomas Hoenig — he is in favor the legislation.

Hoenig is the single best reason you know the TBTF act is the a good step in the proper direction for bank regulation.



Banks Have Become “Too Big To Fail” Again. Uh-Oh. And there’s only so much governments are willing to do about it.
Simon Johnson
Slate, April 28, 2013

Sherrod Brown Takes On Megabanks — And The Obama Administration   
Brian Beutler
TPM, April 26, 2013 

Trying to Slam the Bailout Door
NYT, April 27, 2013

The Seductive Simplicity of a New Banking Bill
NYT, April 26, 2013  

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