United States banks with over $500 billion in assets will be forced to maintain a capital requirement of 15% if legislation proposed by Senators Sherrod Brown (D-Ohio) and David Vitter (R-Louisiana) is passed.
The senators claim that the new bill,"Terminating Bailouts for Taxpayer Fairness Act," will reduce the likelihood of future taxpayer bailouts by diminishing systemic risk.
The bill also proposes to relax regulations on community banks, better balancing a financial sector presently dominated by a handful of "megabanks."
Brown told reporters that "if big banks want to continue risky practices, they should do so with their own assets…if megabanks want to be large and complex, that’s their choice."
"If big banks fail, their executives and their investors should pay the price. This may be bad news for a few megabanks, but it’s good news for America’s banking system and it’s good news for our economy."
While "reigning in" Wall Street has been a popular political theme since the US housing collapse in 2008, implementation of reforms – such as capital and liquidity requirements under Dodd-Frank – is still years away.
Some argue that now is the time to downsize the big banks because anti-Wall Street sentiment is increasingly palpable on either side of the political aisle.
Others are less optimistic about the prospects for the "bipartisan" bill, suggesting that a strong majority of Democrats and Republicans remain beholden to their big bank backers.
Sources: The Financial Times; The Washington Post; Business Insider; www.brown.senate.gov