WASHINGTON, D.C. ––At today’s hearing of the Senate Banking Committee, U.S. Senator Sherrod Brown (D-OH), chairman of the Senate Banking Subcommittee on Financial Institutions and Consumer Protection, urged Janet Yellen, Chair of the Federal Reserve, to take more forceful action to ensure that Main Street is not held accountable for risky practices on Wall Street. Today’s hearing, required by the Humphrey-Hawkins Act, marks the first for Yellen as Chair of the Fed.

“I’m hopeful that Janet Yellen will ensure that the Fed gives the same attention to the Main Street economy as it has to Wall Street for the past several decades,” Brown said. “Based on today’s testimony by Chair Yellen, I believe we will start to see a Fed focused on maximizing employment and serving as a partner to help grow our economy. That also means ending ‘Too Big To Fail’ policies that put hardworking taxpayers on the hook for Wall Street’s risky practices.”

Brown and U.S. Sen. David Vitter (R-LA) are sponsors of the Terminating Bailouts for Taxpayer Fairness Act (TBTF Act), legislation that would ensure that financial institutions have adequate capital to protect against losses. Specifically, the TBTF Act would:

Set reasonable capital standards that would vary depending on the size and complexity of the institution. Economic and financial experts agree that adequate capital is critical to financial stability, reducing the likelihood that an institution will fail and lowering the costs to the rest of the financial system and the economy if it does.

  • Mid-sized and regional banks would be required to hold eight percent in capital to cover their assets
  • Megabanks – institutions with more than $500 billion in assets – would be required to meet a new 15 percent capital requirement
  • Community banks would remain unchanged by the legislation, as the market already requires them to maintain capital ratios approaching 10 percent of their assets

Limit the government safety net to traditional banking operations. When the government established the Federal Reserve in 1913 as a lender of last resort and created deposit insurance in response to the Depression, support was intended for commercial banks that provided savings products and loans to American consumers and businesses. At that time, most banks had enough shareholder equity equal to 15 to 20 percent of their assets. In the ensuing decades, the expanding federal safety net allowed financial institutions to depend less and less on their own capital. Federal support was stretched far beyond its original focus, particularly when financial institutions were permitted to enter into the business of insurance, securities dealing, and investment banking. Brown and Vitter’s bill would limit the government safety net to traditional banking operations, protecting commercial banks rather than risky, investment banking activities.

Provide regulatory relief for community banks. By reducing regulatory burdens upon community banks, they can better compete with mega institutions. Because community institutions do not have large compliance departments like Wall Street institutions, this legislation provides commonsense measures to lessen the load on our local banks.

  • Expands the definition of “rural” lenders that can offer balloon mortgages
  • Reduces some impediments for small banks and thrifts to raise capital or pay dividends.
  • Creates an independent bank examiner ombudsman that institutions can appeal to if they feel that they have been treated unfairly by their examiner.
  • Adopts privacy notice simplification legislation.

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