Just say no to future bank bailouts
Sen. Sherrod Brown, D-Ohio, and Sen. David Vitter, R-La., have the right idea but the wrong strategy.
They have introduced a bill intended to safeguard taxpayers from having to bail out more “too big to fail” banks in the future. Their method of doing that would add a burden to customers of both the mega-banks and some of their smaller, often less risky, cousins.
One of the costs of doing business at any financial institution is setting aside some assets to cover emergencies. That money cannot be invested effectively, if at all. And that costs bank customers and stockholders money.
Still, banks with more than $500 billion in assets – only a handful of those doing business in the U.S. – would have to set aside more money, if this bill is enacted. Smaller banks also would face larger set-aside requirements, but only at about half the level demanded of the giants.
During the past several years, taxpayers have spent billions of dollars saving big financial institutions from collapse – because federal regulators deemed them “too big to fail.” Brown and Vitter do not believe taxpayers should subsidize risk-taking by the big banks.
They are right, but bank customers should not have to pay more for insurance of the type these two senators envision. Instead, federal regulators should get over their “too big to fail” kick. Refusing to bail out one or two mega-banks would have a salutary effect on their peers. That, not Brown and Vitter’s idea, should be federal policy.