The Kanjorski Surprise - Now It Gets Interesting

This entry is crossposted on The Baseline Scenario.

The bank lobbyists, it turns out, missed one.  They and their congressional allies were able to gut the Volcker Rule, the Lincoln Amendment, and almost everything else that could have had a meaningful effect on the industry.

But, as I point out in a Bloomberg column today, they couldn't get at (or didn't sufficiently understand?) the Kanjorski Amendment.  This Amendment was originally proposed by Congressman Paul Kanjorski (chair of an important House subcommittee on capital markets) during the fall.  Against the odds, it survived in the final House bill and now -- probably because it has stayed mostly below the radar -- remains in the reconciled legislation.

Kanjorski gives federal regulators the power and the responsibility to limit the activities or even break up big banks if they pose a "grave risk" to the financial system.

The Federal Reserve is in the hot seat on this issue -- and it needs 7 out of the 10 members of the new systemic risk council to agree to any action.  But for the first time someone at the federal level must make a determination regarding whether an individual firm poses system risk.

And congressional committees can call upon the responsible people to explain how they determine whether a megabank is or is not dangerous.  What are the risk metrics they use?  To what extent do they take on board outside opinions?  How much do they consult with the bank itself?

This also creates important space for critics.  There are many people -- outside of the big banks -- working on developing ways of assessing system risk.  Again, congressional hearings can raise the prominence and credibility of this work.  The question will be: If the regulators are not taking these perspectives into account, why not?

This may all sound rather technical, and to some extent it is.  But it is also intensely and pointedly political.  The Kanjorski Amendment makes it clear that system risk must be assessed and dealt with.  And it assigns clear responsibility for this issue -- along with a cut and dried list of remedies.

The debate on big banks and the dangers they pose is far from over.

 

 

 

Comments

[anotheRedherring]

12:00 AM on 07/13/2010

this will be a fruitless victory as no one ever gets a committee seat unless theyre one of the crooks on the take. we need exact and numerical limits on banks. banks on 35:1 leverage should be limited to something more reasonable. selling off all the risk created in bad faith loans is clear fraud. I, for one, believe that if you join with a bank in a loan you are both tied together by that contract and both must be absolutely explicit in the transfer of the debit to another bank. our one true enemy has been the fact that banks do not deal with clients one on one anymore. they have one contract that we can only accept in whole or reject. there is no bargain. we cant reject certain lines to reform the contract like we were taught in school. that is the measure of whether a bank is too big. when almost every client is forced to accept unalterable, jargon code, contracts or lose their job, house and livelihood then the banks have already grown too big.

[FR713]

01:33 PM on 07/12/2010

It would appear that the actual effect would be to allow someone in the executive branch to freely extort benefits by suggesting that the regime will seek system harm designation.

[ladcrp]

03:36 AM on 07/12/2010

My Money Your Money

My Land Your Land

Old Native American Proverbs

[saintjule]

07:48 PM on 07/11/2010

The only problem is that when one of the large banks is in trouble again and forced to liquidate it will sell to the other large banks making them even bigger. They may not have missed this rule but rather cherish it. This bill is so flawed that it will probably bring down the Obama administration. The original intent was glamorous, but flawed from the start. "Let's get what we can" simply ended up writing Gramm-Leach-Bliley on different paper. It is global gambling on steroids.

[hdc77494]

06:48 PM on 07/11/2010

So unelected bureaucrats get to decide whether or not a bank is a hazard to the system, seize it and liquidate it without going to court? Please tell me where the recourse is for private property owners? Is this even legal?

[saintjule]

07:52 PM on 07/11/2010

These are not private property, nor are they banks. They are super corporate money stores that deal with your private life, (i.e. your destiny and legacy). But have no fear the regulators will probably be owned.

[MyFatCat]

02:46 AM on 07/12/2010

What part of "And congressional committees can call upon the responsible people to explain how they determine whether a megabank is or is not dangerous" did you not understand? All of it, evidently.

[EdCorner]

06:41 PM on 07/11/2010

It's a Too Big To Fail protection bill. Even the most noblest efforts have been watered down by the financial terrorists we call Investment Banks and their lobbyists. They used our taxpayer money to lobby for these changes!! It's unbelievable. Vote out all bought and paid for and in the banksters, insurance companies and oil giants pockets. If you vote in an incumbent - you are voting in a corporation to the highest offices of our government that makes our laws.

[billyjoebobby]

01:27 AM on 07/12/2010

Democratic incumbents have just found a number of ways to stifle bank lobbyists. So, no, you don't get to vote for a Republican, call yourself an an anarchist, and go to bed.

[WorldisMorphing]

06:35 PM on 07/11/2010

So you break' em up and seperate them into 'x' distinct entities...and tell them to continue their good work so they can go on and make more money and gr... ...and what ?

When will people understand that in this system...the top banks are by definition TBTF....?

[anotheRedherring]

12:05 AM on 07/13/2010

meet the new banks same as the old banks.

[b thunder555]

06:19 PM on 07/11/2010

If the "industry" could make Goldman Sachs board member Friedman the President of Fed. Reserve bank of New York, and replace Fed Res bank of NY President Geithner with Goldman's chief economist Dudley, if CEO of bankrupt Lehman was the board member of the same Fed bank for 3 months AFTER Lehman bankruptcy and along with CEO of GE were on the board representing "the public", if Rubin, and Paulson and "Rubin's boy" Geithner could be "made" Secretaries of the Treaury - just imagine what kind of Wall St. shills will be "stuffed" in this "systemic risk council."
The senator's intentions are noble, but in reality this will be another rubber-stamp crew. If We, The People want to get rid of too big to fail banks, the law has to PROHIBIT their existence, not try to create new bureaucracy that will be "owned" by the industry's lobbyists.

[saintjule]

07:54 PM on 07/11/2010

Ditto. Home work done and an A+

[anotheRedherring]

12:07 AM on 07/13/2010

I agree with Saintjule. you said it better than I could. thank you.

[LeeCalif]

05:32 PM on 07/11/2010

" The debate on big banks and the dangers they pose is far from over."

So keep a minimum of $$ in them.

[saintjule]

07:55 PM on 07/11/2010

Doesn't do any good. Paulson and Bair just pumped trillions into the banks of your money and mine.

[mrnewly]

04:39 PM on 07/11/2010

This financial reform is yet more bunk that has been coming out of congress. No attention to Fannie or Freddie so they will continue their failed model and continue to be supported by tax payers till the end of time.

[Matt Osborne]

05:39 PM on 07/11/2010

Fannie and Freddie aren't the source of the problem. They don't create the mortgages or the mortgage products; all they do is buy up mortgages from banks so the nation's financial system can create more mortgages. They managed to do that as fully privatized entities from 1968-2005 with no problems...until they decided to get into the mortgage-backed securities biz just before it blew up.

[EdCorner]

06:25 PM on 07/11/2010

It's more than that Matt, that's the problem. The banks don't have to make a "real" market, one that worldwide investors would want to invest it, as long as the GSE's will buy whatever crap the banksters can write. The way it's set up with the GSE's, the banks are playing the board game "Monopoly" with real money - our money. The banks aren't doing quality loans or underwriting they are up to the same tricks, scams and crimes that brought down the markets knowing that our dime is buying whatever crap they can write and a bailout is there waiting if they lose in their gambles. The GSE's should have been addressed as they are a continued bailout for the banks (I thought the banks were fine?) and a continuation of the banks not having to make a "real" market. Look how much the banks are booking in profits. They haven't had a losing day in months!! Unheard of and impossible when you consider the odds of such a winning streak. No, the GSE's are the problem and they enable a non-competitive (too big to compete) mortage system that is costing the consumer and this country, more and more every day. BTW, they were private with a public policy government mandate. Considering we own them they are no longer private. Make the banks create a "real" market - Simple.

[saintjule]

08:09 PM on 07/11/2010

finally, the real story.

[saintjule]

07:59 PM on 07/11/2010

Fannie and Freddie are small players in this scheme and have been real stoic heroes in this Wall Street mess. They are quasi public so they really can't defend themselves, but they are not the criminals. The Fannie Freddie problem is an easy fix, but is used as a diversion.

[FarOutFish]

04:18 PM on 07/11/2010

"Kanjorski gives federal regulators the power and the responsibility to limit the activities or even break up big banks if they pose a "grave risk" to the financial system."

Without Judicial review this is another unconstitutional power grab by government. Of course neither party has any intention of following the Constitution, if it were a 'living' constitution, it was assassinated decades ago.

[saintjule]

08:03 PM on 07/11/2010

The cops can ticket you for smoking in your car, not wearing a seat belt. spitting on the side walk, driving ten miles over the speed limit on a super highway, etc... But don't worry the regulators will probably be owned and when they break up a bank, it will be to crate even bigger ones. Keep on Keeping on bros.

[Intolerantcentrist]

03:14 PM on 07/11/2010

There are two reasons this legislation will not prevent the next financial debacle. First, of the “Restoring American Financial Stability Act of 2010; SEC. 113. AUTHORITY TO REQUIRE SUPERVISION AND REGULATION OF CERTAIN NONBANK FINANCIAL; (h) JUDICIAL REVIEW”, regulated institutions can sue in Federal Court to have actions taken by regulators “dismiss” or “rescinded”. Second, we already have laws on the books, but we (the government that is) choose not to enforce. Laws such as the Prompt Corrective Action Law (a law that mandates the government to preemptive take action) could have been used to stop our current financial meltdown before it started. However, the possibility of relief or protection that a laws provides is dependent upon the government willingness to enforce such a law.

[DrJykell]

01:27 PM on 07/11/2010

Well great,,, now we'll have the relatives of bankers watching too big to fail,,, so there couldn't possibly be any conflict of interest there,, I mean it'll be nothing like the SEC's friends of Bernie Made-off situation..

OK,,,,,,,ALL TOGETHER NOW!!!!

So as long as it only hurts individuals,,,, it's okie dokie,,,, where do I sign up?


I wonder how many times the definition of TBTF will evolve in this special panel of honesty,,,,

[WhatChanged]

08:48 AM on 07/11/2010

A president with courage would veto this bill and send it back for repair.

[Anym]

12:24 AM on 07/11/2010

If it's left up to the FED to do the dismantling forget it.

You might as well ask blackwater to watch police rowdy military contractors.