WASHINGTON Sen. Bernie Sanders, I-Vt., and Rep. Brad Sherman, D-Calif., reintroduced legislation Tuesday to break up the largest financial institutions.
The Too Big to Fail, Too Big To Exist Act would require the Treasury Department to identify within 90 days all financial services companies that would, if they failed, "have a catastrophic effect on the stability of either the financial system or the United States economy without substantial government assistance," and then break up them within a year.
The bill did not detail how Treasury should break up the banks.
Both lawmakers have been vocal in criticizing the size of the largest institutions for years, but said at a press conference Tuesday that they are increasingly optimistic as the issue continues to gain traction on both sides of the political aisle.
"I think when you have conservative heads of [Federal Reserve Banks] talking about this issue, when you saw in the vote-a-rama the budget proposal got no opposition, when you see conservative columnists talking about this issue, I think we have more momentum than we had in the past," said Sanders. "It's not going to happen tomorrow, but I think the momentum is with us."
Their announcement comes ahead of pending legislation being crafted by Sens. Sherrod Brown, D-Ohio, and David Vitter, R-La., that is expected to focus on raising capital standards, but could effectively break up the largest institutions. Sanders said he would be supportive of the Brown-Vitter bill.
Still, Sherman warned that raising the amount of capital banks hold is unlikely to entirely fix the problem.
"The amount of capital that would be necessary to eliminate this implicit federal guarantee, to make these institutions so secure on their own, that the 'too big to fail' notion was not used in their cost of funds would be well beyond what's being discussed," said Sherman. "I don't think we'll be able to increase capital requirements sufficiently to deal with this problem. 'Too big to fail' is too big to exist."
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