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Bank Regulation

  • Break Up "Too Large to Let Fail" Banks

  • Separate Banks from Investment Houses

  • Restore Prudent Banking Practices

  • Restore Reliable Credit for Small Businesses

  • More Effective Consumer Protection

The economic disaster which took us to the brink of a massive depression in 2008-2009 did not have to happen. It resulted from the personal greed of Wall Street bankers and investment house executives. Alan Greenspan, the Chairman of the Federal Reserve (the Fed) from 1987 to 2006, said he miscalculated in his thinking that the Wall Street firms would not bring financial ruin on themselves. He did not realize that the system was driven, not by corporate health or profit, but rather by executive bonuses. (More on Greenspan) The executives at the top as well as the lower levels of the Wall Street corporations were making millions to billions from bonuses tied to financial instrument trading.  The financial instruments were packages of risky mortgages caught up in the insane upward spiral of housing prices.  Since they could permanently enrich themselves and escape on golden parachutes as their corporations disintegrated, they did not care what happened.  Through the spiral to disaster from 2000 to 2008, the Bush Administration, the Fed, and Congress looked the other way, not trying to put the brakes on what many independent economists warned was a disaster in the making.  Once funding only Republicans, the benefiting executives began to spread their campaign contributions to Democrats as the political pendulum began to swing that way.  See Campaign Finance Reform.   

The bankers have testified that the financial crisis of 2008 was unforeseeable and won't happen again for a hundred years. (See economist Paul Krugman's treatise "Bankers without a Clue".)  From an historical perspective, financial crises (They were earlier called panics.) occurred frequently ( 1837, 1857, 1869, 1873, 1893, 1903, 1907, and 1929) throughout the 19th and early 20th centuries. This stopped with the regulations put in place by Franklin Roosevelt when he signed the Glass-Steagall Act 1933.  In addition to establishing the FDIC, the Glass-Steagall Act prevented banks from also being investment houses.  That latter portion was repealed in 1999 and the buildup to the financial disaster 0f 2008 began.  In 2010 Democrats passed banking reregulation legislation known as the Dodd Frank Act.   This reregulation was weakened by banking lobbyist pressure on Democrats and opposition by all Republicans in the House.  Dodd Frank includes the Volker Rule which restricts the ways banks can invest and regulates trading in derivatives.

The banks which were "too large to let fail" in 2008 are larger in 2014.  See "Largest Banks by Deposits / Assets" and U.S. Bank Deposits Grow as Largest Firms Take a Bigger Share .   The six largest banks held $1.1 trillion in deposits - 30% of the national total.  The Dodd Frank includes language allowing it break up "to large to let fail" banks but no such action has been taken.  I favor legislation restricting banks to no more than 1% of the total national deposits.  Banks could be allowed 2 years to get below 2% and 5 years to get below 1%.

The Dodd Frank Act also included the formation of Consumer Financial Protection Bureau.  In the Investopedia link above:
"The new Consumer Financial Protection Bureau (CFPB) is tasked with preventing predatory mortgage lending, improving the clarity of mortgage paperwork for consumers and reducing incentives for mortgage brokers to push home buyers into more expensive loans. The CFPB has also changed the way credit card companies and other consumer lenders disclose their terms to consumers. It requires loan terms to be presented in a new, easy-to-read-and-understand format."

The Republicans in the Senate refused to confirm (60 vote rule) Richard Cordray as Director of the CFPB, not because they had any problem with him, but rather because they wanted to keep the CFPB from functioning.  After President Obama made it a recess appointment and that was challenged in court, Democrats suspended the 60 vote rule for appointments and confirmed Cordray by a majority vote.  Something which should have been quick and easy was made time consuming and difficult by Republican obstruction.

Dodd Frank is a very long law (848 pages) and its effectiveness remains open to concern.