ICBA Policy Resolution: Ending Too-Big-To-Fail


  • The continued growth and dominance of a small number of too-big-to-fail banks has led to an overly concentrated financial system, created unacceptable moral hazard and systemic risk, thwarted the operation of the free market, and harmed consumers and business borrowers.

  • ICBA supported S. 2155 which increased the asset threshold at which certain enhanced prudential standards apply, from $50 billion to $250 billion, and gave the Federal Reserve discretion regarding certain standards that should apply to banks with $100 billion or more in assets. S. 2155 also provided an exemption from the Volcker rule for banks with assets less than $10 billion and with total trading assets and liabilities not exceeding 5 percent of total assets

  • ICBA supports legislative and regulatory measures that would curb or end advantages currently enjoyed by too-big-to-fail banks, and help mitigate the risk they pose to the financial system and economy. Such measures include higher capital and leverage requirements, enhanced liquidity standards, activity restrictions, concentration limits, limitations on the federal safety net, and more effective resolution authority.
  • ICBA supports the Federal Deposit Insurance Corporation’s (FDIC’s) and the Federal Reserve’s rules on contingent resolution plans and encourages the agencies to use the provisions of the Dodd-Frank Act requiring systemically important financial institutions (SIFIs) to divest their assets if they do not file credible plans.
  • The U.S. Justice Department must end the double standard with regard to prosecutions for bank operations and practices. Despite rampant malfeasance in the years prior to and following the financial crisis, few senior executives at large banks have been prosecuted.


Dominance of the Largest Banks

The greatest ongoing threat to the safety and soundness of the U.S. banking system is the dominance of a small number of too-big-to-fail megabanks. The megabanks have become even larger since the financial meltdown. In fact, the 12 largest U.S. banks, or 0.2 percent of all U.S. banks, hold over 70 percent of industry assets, dwarfing the rest of the banking system and representing massive systemic risk. Because these firms are too big to fail, they act with impunity and court risks that no smaller firm would tolerate. The markets offer them credit at rates that do not reflect their true risk—rates that are subsidized by an implicit taxpayer guarantee. In addition, large or interconnected institutions are too big to prosecute and their executives are too big to jail.

No banker should be above the law. The same prosecutorial standards and enforcement procedures must apply to community banks and megabanks alike. The five largest banks hold nearly half of U.S. industry assets, a higher percentage than they held before the 2008 financial crisis. Many of these megabanks such as Wells Fargo are also too big to manage. To address TBTF, we must both reduce the riskiness of megabanks to make it less likely they will fail in the first place, and, when an institution is failing, ensure that tools are available to implement an orderly liquidation of the institution without causing a destabilizing systemic impact.

Enhanced Prudential Standards for Systemically Important Financial Institutions (SIFIs)

ICBA generally endorses higher capital, leverage, liquidity standards, concentration limits, and contingent resolution plans for SIFIs. ICBA supported the requirement for a higher supplementary leverage ratio on the largest banks and their holding companies adopted by bank regulators. ICBA supports a significant capital surcharge on SIFIs and the imposition of total loss absorbing capacity (TLAC) and long-term debt (LTD) requirements on globally significant banks. ICBA supported S. 2155 which increased the asset threshold at which certain enhanced prudential standards apply, from $50 billion to $250 billion, while allowing the Federal Reserve discretion in determining whether a financial institution with assets of $100 billion or more must be subject to such standards. S. 2155 also increased the asset threshold at which company-run stress tests are required from $10 billion to $250 billion and increased the asset threshold for mandatory risk committees from $10 billion to $50 billion. 

FDIC as Receiver; “Funeral” Plans

ICBA supports the orderly liquidation rules of the FDIC and the provisions of the Dodd-Frank Act that provide a process for the appointment of the FDIC as receiver of a failing financial company that poses significant risk to the financial stability of the United States. ICBA also supports the FDIC’s and the Federal Reserve’s rules requiring SIFIs to submit contingent resolution plans that enable the FDIC, as receiver, to resolve the institution under the Federal Deposit Insurance Act.  It is essential that the largest financial companies submit credible contingent resolution plans that would facilitate a rapid and orderly resolution of the company and describe how the liquidation process could be accomplished without posing systemic risk. If a company cannot submit a credible plan, the FDIC and the Federal Reserve should exercise their authority under the Dodd-Frank Act to order a divestiture of those assets or operations that might hinder an orderly resolution. 

Volcker Rule Should Target Large Banks Exclusively

In a victory for ICBA, S. 2155 completely exempts from the Volcker Rule banks with assets of less than $10 billion provided that they have total trading assets and liabilities not exceeding 5 percent of total assets. 

Staff Contact: Chris Cole