After decades of dealing with the systemic risks, government-subsidized competitive advantages, and regulatory burdens caused by the largest financial institutions, there is now growing momentum to fundamentally address the too-big-to-fail problem. Fortunately for community bankers and the communities we serve, Washington and the American public are taking notice of the destructive impact of too-big-to-fail. It’s evident now more than ever that we are not alone in this fight—so it is time for us to take action now!
The Terminating Bailouts for Taxpayer Fairness Act (S. 798), introduced by Sens. Sherrod Brown (D-Ohio) and David Vitter (R-La.), would implement higher capital levels on the largest megabanks to address the market distortions caused by their too-big-to-fail guarantee. Under the TBTF Act, capital levels would vary depending on size and complexity. Bigger banks would have higher capital rates, while community banks under $50 billion in assets would have to comply with equity capital standards that are comparable to existing risk-based leverage ratios.
As community bankers, we have experienced first-hand the effect of too-big-to-fail. While the largest financial firms contributed to the market crash and economic downturn we are still crawling out of, community banks have been left to fend for themselves to spur the recovery against a rising tide of regulation.
Employing stricter capital guidelines on the largest and riskiest financial firms while easing the regulatory burdens they have caused for the rest of us would help remove government distortions of our financial system, eliminate systemic risk and level the playing field for community banks and the Main Street communities we serve. We urge you to act now on behalf of the TBTF Act to take a positive step toward a more balanced and secure financial system. Let’s all make sure that free markets determine success or failure, not some Washington bureaucrat or the American taxpayer.