U.S. House of Representatives
Washington, D.C. 20515
December 7, 2009
Re: Support Rep. Inslee’s Amendment to limit Firm Liabilities to 2% of the GDP
The over 200 consumer, employee, investor, community and civil rights groups who are member of Americans for Financial Reform write you today to convey the coalition’s strong support for the amendment to H.R. 4173, the Wall Street Reform and Consumer Protection Act of 2009, offered by Representative Jay Inslee. It is a necessary addition to the bill’s systemic risk proposals and will help prevent another financial crisis.
By ensuring that no financial firm’s liabilities exceed 2 percent of our nation’s Gross Domestic Product (GDP), Rep. Inslee’s amendment will:
- Minimize Taxpayer Bailouts. Limiting a bank’s liabilities will reduce the impact of losses on taxpayers. At its height, Wall Street received $17.5 trillion in bailouts and other cheap loans and subsidies from various federal entities. Certain subsidies have since been closed, leaving the total federal support deployed or on offer to the industry at $12.3 trillion as of December 2009.
- Protect our Economy. By linking a bank’s potential losses relative to the size of our economy, the amendment will ensure that banks do not take on risks that neither it nor our economy can absorb. For example, Bank of America currently has $2 trillion in liabilities, just half of which are deposits; our nation’s entire GDP is just $14.2 trillion.
- Reduce Concentration. The proposed amendment will affect only the largest banks, which have ballooned under deregulation to make a once-competitive U.S. banking industry now dangerously concentrated. For example, Bank of America’s share of domestic deposits has tripled in ten years, from 4.2 percent to 13.2 percent (using loopholes to escape the government’s 10 percent limit on deposits). As even two candidates for the bank’s CEO position have argued, it has grown too large to effectively manage.
- Support Small, Community Banks. The “Too Big to Fail” policy has squeezed smaller banks, as investors offer cheaper funding to large banks because of their implicit government guarantee. In a recent study by Dean Baker at the Center for Economic Research, Baker computed that big banks enjoy as much as a $34 billion advantage on financing because of government subsidies relative to smaller banks.
We also believe that adopting either of Rep. Inslee’s two higher proposed liabilities caps would provide significant improvements over the status quo. However, two percent of GDP reflects the most prudent measure. Americans for Financial Reform urges members to enact solutions that are as fundamental and far-reaching as are the problems facing the banking industry. Rep. Inslee’s well-considered proposal to reduce the liabilities of the largest banks is one such solution, and is vital to the bill’s goal of reducing systemic risk for a more vibrant and competitive U.S. financial sector.