Sanders's "Too Big To Fail, Too Big To Exist Act"

[BlueCheese]

Last edited Tue Dec 8, 2015, 04:29 AM - Edit history (1)

Part 2 of a very occasional series in which I try to explore the details of a candidate's policy proposal.

In Part 1, I looked at Bernie Sanders' proposal for free public college tuition. In general, I thought it was well-conceived and very interesting, and certainly worth taking seriously.

Bernie Sanders frequently talks about breaking up the big banks. This has strikes me as an extremely complicated task, and I was curious how he plans to go about it. Fortunately, since Sanders is a current Senator, he has the opportunity to propose actual legislation, and we get a chance to see the details of his plans.

Sanders' bill to break up the big banks is called the Too Big To Fail, Too Big To Exist Act, and he introduced it on May 6, 2015. Unfortunately, in contrast to his bill for free public colleges, this bill is rather lacking in substance. The entire bill, which would mandate the dismantling of some of the largest financial institutions in the world, is only about 550 words. Its contents can be easily summarized as follows:

1. After the bill is passed, the Financial Stability Oversight Council (a council of ten people created by the Dodd-Frank Act) has 90 days to come up with a list of banks that are "too big to fail". This must include the banks already identified by the FSOC as systemically important, and which are already currently subject to additional requirements and regulation.

2. The Secretary of the Treasury must break up these institutions within a year. In that time, these banks cannot avail themselves of various services provided by the Federal Reserve, or use insured deposits for anything other than commercial banking.

And that's it. There is no guidance on how these banks should be broken up. Should there be multiple regional entities, or smaller national banks, or will it happen along business lines? What happens to depositors, or borrowers, or shareholders? I'm not a business or finance person, but it seems to me that breaking up a huge company with millions of customers is an extremely complicated process. The power to make all of the thousands of decisions this entails can't simply be handed over to whomever is the Treasury Secretary at the time, with no legislative guidelines on how to do it. I'm frankly not even sure that would be constitutional.

Overall, then, on this issue I find Sanders's approach to more style than substance. I think the seriousness of it can be seen in that it has no cosponsors in the Senate, and only two cosponsors in the House. Sanders has brought a lot of interesting viewpoints to the debate, but this is not his best work.