November 09, 2009
Pretty Short Effort To Do Something About TBTF
Posted by David Zaring

Here's Bernie Sanders' bill requiring that banks be broken up if they get too big (what is it about the populists and antitrust?  Maybe the TOTM guys have a thought):

A BILL
To address the concept of ‘‘Too Big To Fail’’ with respect
to certain financial entities.
1 Be it enacted by the Senate and House of Representa2
tives of the United States of America in Congress assembled,
3 SECTION 1. SHORT TITLE.
4 This Act may be cited as the ‘‘Too Big to Fail, Too
5 Big to Exist Act’’.
6 SEC. 2. REPORT TO CONGRESS ON INSTITUTIONS THAT
7 ARE TOO BIG TO FAIL.
8 Notwithstanding any other provision of law, not later
9 than 90 days after the date of enactment of this Act, the
10 Secretary of the Treasury shall submit to Congress a list
[page break]
1 of all commercial banks, investment banks, hedge funds,
2 and insurance companies that the Secretary believes are
3 too big to fail (in this Act referred to as the ‘‘Too Big
4 to Fail List’’).
5 SEC. 3. BREAKING-UP TOO BIG TO FAIL INSTITUTIONS.
6 Notwithstanding any other provision of law, begin
7 ning 1 year after the date of enactment of this Act, the
8 Secretary of the Treasury shall break up entities included
9 on the Too Big To Fail List, so that their failure would
10 no longer cause a catastrophic effect on the United States
11 or global economy without a taxpayer bailout.
12 SEC. 4. DEFINITION.
13 For purposes of this Act, the term ‘‘Too Big to Fail’’
14 means any entity that has grown so large that its failure
15 would have a catastrophic effect on the stability of either
16 the financial system or the United States economy without
17 substantial Government assistance.

As James Kwak observes, "That’s the entire bill."  Almost Paulson-esque in its simplicity, and, arguably, in its possible nondelegation doctrine problems.  The bill turns on Treasury's ability to break up institutions "that the Secretary believes are too big to fail."  There's not much guidance from Congress about what the secretary should use to inform his beliefs, and indeed, there's a pretty good argument that courts would be unable to devise a workable standard as to whether the secretary's belief regarding this or that bank was arrived at arbitrarily.  Which would mean that this whole thing would be exempt from judicial review.

Maybe Sanders is frustrated with the length of the bills being reported out of the House financial services committee.  Or tired with those jokes about the number of pages in health care reform legislation.

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