Finally, a Bill to Reinstate Limits on Bank Size

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Finally, a Bill to Reinstate Limits on Bank Size

Huffington Post – Not one to let a good crisis go to waste, Bank of America managed, in the dark days of 2008, to parlay its own insolvency and near collapse into attaining something it had long dreamed of: federal approval to bypass a national law that says that no bank may acquire another bank if it would end up holding more than 10 percent of the country's deposits.

For years, Bank of America had hovered on the 10 percent threshold. Its acquisition of Fleet Boston in 2004 put it over the line and should have been prohibited, but Bank of America, with the Federal Reserve's blessing, came up with a clever way to do the math. By counting all the deposits held in U.S. territories, like Guam and Puerto Rico, Bank of America inflated the national deposit total enough to limbo-dance its way under the bar. Similar contortions allowed it to acquire LaSalle Bank in 2007.

Dodd's financial reform bill lacks a hard cap on bank size, but an amendment put forward by Senator Sherrod Brown of Ohio would strictly limit the size of banks and, if enacted, entail breaking the country's largest banks into several pieces.

Brown's proposal fixes several flaws in the current deposit cap, which Congress adopted in 1994 as part of a sweeping deregulation bill that allowed banks to merge and expand across state borders with virtually no restrictions. The cap was added to the bill in order to appease public concerns that a few banks would become too large and powerful. (Those concerns proved well-founded. When the law passed, the top five banks together held 12 percent of U.S. deposits. A mere fifteen years later, the top five account for nearly 40 percent of deposits. See our charts for more detail.)

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