Sen. Bernie Sanders (I-Vt.) has introduced legislation that would break up the six largest banks in the country: JP Morgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley.
The bill ultimately aims to safeguard the economy and prevent another costly taxpayer bailout. It would also address large non-bank financial service companies such as Prudential, MetLife, and AIG.
Rep. Brad Sherman (D-Calif.) will introduce a companion bill in the House.
To break up the banks, the legislation proposes the application of a cap on the size of financial institutions so that a company’s total exposure is no more than 3% of GDP, about $584 billion today. Entities that exceed the 3% cap would be given two years to restructure until they are no longer “too big to fail.”
Additionally, institutions that are “too big to exist” would no longer be eligible for a taxpayer bailout from the Federal Reserve and could not use customers’ bank deposits to speculate on derivatives or other risky financial activities.
“No financial institution should be so large that its failure would cause catastrophic risk to millions of Americans or to our nation’s economic well-being,” Sanders said. “We must end, once and for all, the scheme that is nothing more than a free insurance policy for Wall Street: the policy of ‘too big to fail.’”
“Too big to fail should be too big to exist,” Sherman said. “Never again should a financial institution be able to demand a federal bailout. Today they can claim: ‘If we go down, the economy is going down with us.’ By breaking up these institutions long before they face a crisis, we ensure a healthy financial system where medium-sized institutions can compete in the free market.”