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Sanders pushes plan to break up big banks

By Claes Bell · Bankrate.com
Tuesday, January 26, 2016
Posted: 10 am ET
Andrew Burton/Staff/Getty Images News/Getty Images

Democratic presidential candidate Sen. Bernie Sanders (I-VT) shakes hands with supporters on Jan. 5 after outlining his plan to reform the U.S. financial sector. Andrew Burton/Staff/Getty Images News/Getty Images

If elected president, U.S. Sen. Bernie Sanders promises within his first 100 days he'll begin dismantling any banks deemed "too big to fail." But even if he wins the White House, fulfilling this promise would be a pretty tall order.

Here's what Sanders said in a Jan. 5 speech:

"If Teddy Roosevelt, the Republican trust-buster, were alive today, he would say 'break 'em up.' And he would be right.

"And, here's how I will accomplish that.

"Within the first 100 days of my administration, I will require the secretary of the Treasury Department to establish a 'Too-Big-to Fail' list of commercial banks, shadow banks and insurance companies whose failure would pose a catastrophic risk to the United States economy without a taxpayer bailout.

"Within 1 year, my administration will break these institutions up so that they no longer pose a grave threat to the economy as authorized under Section 121 of the Dodd-Frank Act."

A popular idea

While the Vermont lawmaker is the only 2016 candidate to make such a pledge, and his speech has gotten a cold reception even among many Democrats, breaking up large banks does have some popular support.

A 2015 poll commissioned by the Progressive Change Institute and conducted by GBA Strategies found that 55% of likely voters supported a policy that would "break up financial institutions that are deemed 'too big to fail,' even if that means breaking up some of the biggest power players on Wall Street."

Executive action probably won't do it

It's unlikely that Sander's goals could be carried out via executive action alone. As American Banker's Rob Blackwell pointed out after the speech, Sanders would need:

  1. An affirmative vote from 4 of the 7 Fed governors that the institutions in questions pose "a grave threat to the financial stability of the United States."
  2. A two-thirds majority of the 10-member Financial Stability Oversight Council, or FSOC, whose members include the heads of 7 financial regulators, the chairman of the Federal Reserve, an independent insurance expert confirmed by the Senate and the secretary of the Treasury.

While Sanders could presumably exert control over some members of the FSOC, Blackwell contends "there is more likelihood that I will be eaten by a great white shark while eating lunch at my desk than of this plan ever being enacted."

Could happen with legislators' help

Of course, if Sanders can get another branch of government on his side, the path may become clearer.

In his speech, the senator may have been alluding to legislation he proposed last year called the "Too Big To Fail, Too Big To Exist Act," which, if passed, would indeed give a Sanders administration the ability to break up banks big enough to take down the U.S. financial system. The bill would obligate the secretary of the Treasury to break up any too-big-to-fail banks, including those identified as "systemically important" by the Financial Stability Board, an international group that monitors the global financial system.

Assuming he's elected, if Sanders could somehow persuade both houses of Congress, at least one of which will probably remain under Republican control, to pass the bill, then banking giants like Bank of America and JPMorgan Chase could get hacked up into smaller, less-threatening pieces. But, with banks' lobbying dollars and a general trend toward congressional deadlock, the chances of that may not be much higher than Blackwell's shark/desk scenario.

What do you think? Should "too big to fail" banks be broken up? Will they be?

Follow me on Twitter: @claesbell.

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6 Comments
Mike
January 31, 2016 at 1:03 am

I am not sure if the big banks need to be broken up, but if they fail it's on them and their members -- not the taxpayers!

Claes Bell
January 29, 2016 at 9:20 am

Curtis, that's a good question. There are a number of different ways the banks could be broken up. You could divide it up by lines of business -- for example, investment services, retail banking, etc. Or you could do it by region, as the government did when they divided up AT&T in the early 1980s. The former is probably the more workable solution in the case of the banks.

Curtis D. Thomson
January 28, 2016 at 8:14 pm

Hi,

What would these smaller, hacked up, pieces of the banks deemed too big to fail look like? Would they still be owned by, say, BoA, or would they be sold off to other smaller banks and companies? How do you envision such a break up? Thanks.