Right idea, wrong strategy
Sen. Sherrod Brown, D-Ohio, has the right idea but the wrong strategy.
Brown has introduced a bill intended to safeguard taxpayers from having to bail out more “too big to fail” banks in the future. His method of doing that would add a burden to customers of both the mega-banks and some of their smaller, often less risky, cousins.
One of the costs of doing business at any financial institution is setting aside some assets to cover emergencies. That money cannot be invested effectively, if at all. And that costs bank customers and stockholders money.
Still, banks with more than $500 billion in assets – only a handful of those doing business in the U.S. – would have to set aside more money, if Brown’s bill is enacted. Smaller banks also would face larger set-aside requirements, but only at about half the level demanded of the giants.
During the past several years, taxpayers have spent billions of dollars saving big financial institutions from collapse – because federal regulators deemed them “too big to fail.” Brown does not believe taxpayers should subsidize risk-taking by the big banks.
He is right, but bank customers should not have to pay more for insurance of the type Brown envisions. Instead, federal regulators should get over their “too big to fail” kick. Refusing to bail out one or two mega-banks would have a salutary effect on their peers. That, not Brown’s idea, should be federal policy.