It’s time for us to end ‘too big to fail’

Regional and community banks help create countless jobs and provide safe and reliable loans and mortgages to American families and small-business owners. We should create a level playing field for all consumers and financial institutions, rather than picking winners and losers in our financial system.

But five years ago, when the federal government declined to bail out Lehman Brothers but provided support to other financial institutions before and after Lehman’s failure, it set a threshold for banks that are so large and interconnected that they are “too big to fail.”

These institutions still threaten the safety and soundness of our financial system. And the biggest mega-banks, which were too big to fail before the crisis, have only gotten bigger.

{mosads}Just 18 years ago, the six largest banks in the United States had assets equal to 18 percent of our gross domestic product. Today, the six largest banks have assets equal to 63 percent of our GDP.

This too big to fail status also gives the six largest banks a taxpayer-funded advantage over mid-sized and community banks.

Meanwhile, community banks  — which haven’t engaged in the risky practices of Wall Street and provide critical services to Main Street consumers and small businesses — often face many of the same regulatory burdens that the nation’s biggest banks do.

In 2012, Sen. David Vitter (R-La.) and I requested that the Government Accountability Office (GAO) look into the government’s support of the mega-banks. Since then, Bloomberg has estimated that mega-banks’ funding advantage, provided by the expectation of taxpayer support, gives them a subsidy of up to $60 billion per year. Earlier this year, an International Monetary Fund (IMF) report found that government support lowers the funding costs for big banks by up to $70 billion per year. We expect results from the GAO in July to also confirm that the largest banks are able to borrow at below-market interest rates.

We owe it to community banks, regional banks, and most importantly, taxpayers, to end too big to fail.

That’s why I teamed up with Vitter to introduce the Terminating Bailouts for Taxpayer Fairness Act (TBTF Act), legislation that would prevent future bailouts by ensuring that financial institutions have adequate capital to protect against losses.

The bill would also provide regulatory relief for community banks, allowing them to better compete with the Wall Street mega-banks. This will lead to more competition, increase lending, and provide incentives for banks to do business the right way.

When I meet with bankers from mid-sized institutions in my state, I hear about issues like privacy notices and the need to cut down unnecessary and duplicative regulations.

That’s why I introduced the Privacy Notice Modernization Act with my Republican colleague from Kansas, Sen. Jerry Moran. This bill would allow community banks to send consumer privacy notices only when the bank changes its policy, eliminating a burdensome requirement that doesn’t serve consumers while providing significant savings for banks across the country.

But there’s more that we can do to level the playing field in our financial services industry — for insurers as well as community banks. Columbus, Ohio, is the second largest insurance hub in the country, with Nationwide Insurance alone employing more than 14,000 Ohioans. These folks weren’t responsible for AIG’s risky exotic bets.

I agree with New York’s banking commissioner Ben Lawsky, who regulates some of the nation’s largest insurers, that applying bank capital standards to insurance is like trying to “fit a square peg in a round hole.” Bipartisan legislation I introduced with Sen. Mike Johanns (R-Neb.) would remove minimum capital and leverage requirements from insurance companies.

Ending too big to fail isn’t about punishing Wall Street mega-banks. It’s about ensuring a level playing field for all financial institutions, serving American consumers and small businesses, and protecting taxpayers.

Brown is the senior senator from Ohio, serving since 2007. He sits on the Banking, Housing and Urban Affairs; the Finance; the Agriculture, Nutrition and Forestry; and the Veterans’ Affairs committees.