Washington Post: Brown-Vitter banking bill aims to address an unhealthy situation

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Washington Post: Brown-Vitter banking bill aims to address an unhealthy situation

Certainly Washington intervened massively to prop up megabanks during the financial panic of 2008. The perception that taxpayers ultimately stand behind the banks’ balance sheets persists in spite of the Dodd-Frank financial reform bill. Consequently, the banks enjoy cheaper funding than they otherwise might, enabling them to outcompete smaller banks, and thus get bigger still.

Now come two senators, liberal Democrat Sherrod Brown (Ohio) and conservative Republican David Vitter (La.), with a left-right fusion bill aimed at this unhealthy situation. Its core provision requires that all banks with more than $500 billion in assets hold a safety cushion of at least $15 in equity capital for every $100 in assets. The bill would not only require more and better capital but also limit the “risk-weighting” of assets, on the grounds that banks can manipulate such calculations to make their balance sheets seem artificially safe.

This would likely force the Big Four to spin off much of their current business, defusing systemic risk that Mr. Brown and Mr. Vitter believe they now pose.

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