As the Senate heads into tough negotiations over a historic set of financial reforms, the Roosevelt Institute has put together a crucial set of guidelines to the evolving debate.
Mike Konczal, whose blog is a must-read for anyone looking to get a handle on the arcana of financial reform, provided this list of six key causes still worth fighting for in the bill. (Check out his full report at the Roosevelt Institute's New Deal 2.0 blog here.)
While it's certainly wishful thinking that all of the forward-thinking amendments Konczal points out will be passed, keep in mind the negotiations are still ongoing. Check out the six key factors to financial reform below:
(For more of the latest analysis on financial reform, visit the Roosevelt Institute's blog New Deal 2.0.)
(Nathaniel Cahners Hindman contributed to this report.)
Senators Brown, Kaufman, Casey, and Whitehouse’s Safe Banking Act of 2010 would impose a rule that a bank's liabilities cannot exceed 3% of US GDP, says the Roosevelt Institute's report. Currently, the biggest banks are able to borrow money from the Fed's discount window at near-zero rates, amounting to a subsidy to big banks of as much as $34 billion a year, according to a recent report by the Center for Economic and Policy Research.
The Safe Banking Act of 2010 would cap banks' debt-to-equity ratio at 16.76:1, says the report. When Lehman Brothers collapsed, it had about a 30:1 debt-to-equity ratio, meaning it had borrowed $30 for every dollar in capital it held, according to a New York Times report. (Pictured is former Lehman CEO Richard Fuld.)
The House bill, which passed in December, calls for a $150 billion fund built by levies on financial firms that would prevent big bank collapses from disrupting the economy. The Senate bill calls for a $50 billion fund. Both proposals call for the insurance-like fund to be in place before the next crisis hits. The Obama administration, along with Republicans, oppose the fund's creation -- the two camps want taxpayers to foot the bill in the wake of a collapse, with banks reimbursing the cost over time.
The Senate Agriculture Committee passed a derivatives reform bill that is considered to be strong -- and would require most of these unregulated deals to be fed through clearing houses or exchanges. The House bill is considered to be much weaker, Konczal writes.
Although the methods a company can use to keep assets off their balance sheet date back to the Enron era, it's not clear that either the House or Senate bill would completely end these practices. The Roosevelt Institute’s report calls for a change in the way off-balance sheet products like swaps are disclosed.
The "Volcker Rule" would bar banks from investing in, owning, or sponsoring hedge funds, or private equity firms. The Dodd bill, as first introduced, merely says regulators should "study" implementing a Volcker Rule. As the Roosevelt Institute's report notes, an amendment by Senators Merley and Levin would incorporate the Volcker Rule into the Senate bill with stronger, more concrete language.