A Lively “ Break ‘ Em Up ” Debate is Buzzing in the Nation ’ s Capitol

Just a couple of months ago , few Washington observers would have expected that the problem of too-big-to-fail financial institutions would once again be a top priority of policymakers . But a funny thing happened on the way to the 113th Congress . Following comments from the Justice Department that some megabanks are too big to prosecute and more news about Wall Street financial firms behaving badly , policymakers and the public at large are looking for clear answers on how to end the too-big-tofail threat .

The buzz has breathed new life into ICBA ’ s efforts on behalf of policies to downsize too-big-to-fail firms to address their systemic risks , prevent future financial crises and ensure a level regulatory playing field for financial institutions of all sizes . With more and more members of Congress , financial regulators and taxpayers on board , the move to act decisively on too-big-to-fail is in full swing .

Capitol Hill Crackdown With Congress the key stakeholder in the debate over whether to enact new policies on too-big-to-fail , the industry is paying close attention to Capitol Hill . The issue reignited in March when U . S . Attorney General Eric Holder testified to the Senate Judiciary Committee that law-enforcement officials have hesitated to pursue financial wrongdoing at the largest financial firms because of the potential economic impact . While the remarks echoed similar revelations from a “ Frontline ” documentary released months before , they seem to have unleashed a furor , particularly on the Senate side . Soon after , the Senate Permanent Subcommittee on Investigations released a report that found that JP- Morgan Chase used federally insured deposits to partially fund its high-risk “ London Whale ” trades that cost the company $ 6 billion .

Later in March , the Senate voted 99-0 to approve an amendment that would require the federal government to calculate any subsidy or funding advantage for banks with more than $ 500 billion in assets because they are perceived as too big to fail . Sponsored by Sens . Sherrod Brown ( D-Ohio ) and David Vitter ( R-La .), the amendment would require regulators to determine how to eliminate the subsidy without a tax or assessment . While not binding , the amendment nevertheless establishes a blueprint in Congress for addressing the too-big-to-fail advantage of the largest financial institutions .

In a double dose of good news for community banks , a bipartisan group of senators separately called on regulators to finalize Basel III capital guidelines for large financial firms without moving forward on an overly complicated capital regime for community banks . Sens . Bob Corker ( R-Tenn .), Sherrod Brown ( D-Ohio ), Elizabeth Warren ( D-Mass .), David Vitter ( R-La .) and Susan Collins ( R-Maine ) wrote that strengthening capital requirements for large banks will help protect the public against financial instability and too-big-to-fail , while capital guidelines for community banks should be a secondary priority .

gaining new currency . Meanwhile , comments from the Federal Reserve Board ’ s Ben Bernanke , Daniel Tarullo and Jerome Powell that too-big-to-fail remains a problem have invigorated the push to address the issue .

And past regulators have shown they aren ’ t going away on this issue , either . Former FDIC chairman Sheila Bair has pointed out that megabank risk models are unreliable indicators of risk , while her predecessor William Isaac backs a plan to require big banks to hold more in reserves to offset their too-big-to-fail subsidies . With regulators continuing to beat the drum on too-big-to-fail , don ’ t expect Washington to go silent on the issue anytime soon .

Public Speaking Of course , the nation ’ s voters and taxpayers aren ’ t likely to let that happen either . A recent poll found that 50 percent of U . S . adults said they favor breaking up the 12 largest megabanks , with only 23 percent opposed . In addition , 55 percent said the government should let too-big-to-fail banks go out of business if they can no longer meet their financial obligations .

Meanwhile , many thought leaders agree that the only way out of the too-big-to-fail mess is by downsizing the largest firms . olumnists George Will and Peggy Noonan are on board , while economist and New York Times contributor Simon Johnson has declared the debate over whether to limit bank size already over .

That might be a bit of a stretch . But it is no exaggeration to say that members of Congress , financial regulators , and the voting and taxpaying public are expanding their push to address the too-big-to-fail once and for all by downsizing and restructuring the nation ’ s largest financial firms .

• Participation loans ( commercial , agricultural , construction , operating lines and term loans )

• Bank stock & ownership loans

• Bank building financing

• Business & personal loans for bankers

• Multi-family long-term permanent financing