The U.S. Senate rarely votes unanimously on anything of much importance. The Obama White House, though, managed to bring this about: Last May, a clone of its previous year’s budget proposal failed unanimously, 99–0. Way to bring the two parties together, Mr. President.
There was far less consensus on the Senate budget proposal that passed on Saturday. It was approved by only one vote, 50–49.
But an amendment proposed by Sherrod Brown, an Ohio Democrat, and David Vitter, a Louisiana Republican, suggests an intriguing possibility for a future bipartisan agreement: The Senate voted 99–0 late on Friday to end “too big to fail” subsidies or funding advantages for banks with more than $500 billion in assets.
“This is a really impressive sign that we mean business on ending too-big-to-fail,” Vitter said after the vote. “Megabanks are still receiving special handouts that create an uneven playing field — making it harder for our community banks and credit unions to compete.”
The Brown-Vitter amendment doesn’t directly call for breaking up big banks or forcing them to shrink. But eliminating the federal government’s TBTF backstop probably means doing one or both. (Possible methods include taxation, size caps, restructuring, and regulations forcing banks to hold vastly more equity capital.)
Washington insiders dismiss breaking up the big banks as nothing more than boutique public policy. In a piece that ran before the Brown-Vitter amendment passed, Politico’s Ben White wrote, “There is virtually no chance any significant piece of legislation will pass Congress that would meaningfully reduce the size of the nation’s biggest banks or restrict their activities.” The White House doesn’t support the idea, White explained, and folks like Brown and Vitter aren’t power players.
The unanimous Brown-Vitter tally does little to change White’s conclusion. It may be nothing more than a feel-good vote by senators who are playing populist politics with a nonbinding bill that may ultimately prove meaningless. Who, after all, would explicitly support subsidizing big banks? That sounds as if you’re in favor of Treasury Secretary Jack Lew’s sending multibillion-dollar checks to his old bosses at Citigroup.
Still, it is significant that 99 senators voted to do what it takes to end Wall Street’s federal safety net — especially at this very moment, when the Government Accountability Office is attempting to quantify the size of the de facto big-bank subsidy. Recall that back in 2010, the Senate rejected 63–31 an amendment to Dodd-Frank that would have forced banks to shrink. So this may count as some progress (and there has been much more among center-right wonks), now that the biggest banks are even bigger and the industry more concentrated. Oh, and let’s not forget the London Whale.
Moreover the Brown-Vitter vote plainly concedes that Dodd-Frank didn’t end TBTF, and it thus adds a bit more momentum for a new round of financial reform. Bank analyst Jaret Seiberg said last week that he didn’t believe action, which would be a “real risk to the megabanks,” was imminent, or even likely in the next few years — maybe a one-in-three chance. But Seiberg added, “If Congress was ever given the chance for an up-or-down vote on whether to break up the biggest banks, the big banks would lose every time.”
Obama probably doesn’t want that up-or-down vote, which means the idea is tabled in the Democratic Senate and thus for the rest of this session of Congress. The president has already ticked the box on financial reform, so why would he push for more? Who knows, maybe he genuinely believes Dodd-Frank will prevent another financial crisis or taxpayer bailout.
Anyway, it’s Republicans who should be the natural bank-busters in Washington. The existence of TBTF financial institutions reflects government meddling and crony-capitalist collusion rather than market forces. And as far as pure politics goes, embracing pro-market financial reform would be a much smarter way to rebrand the GOP than any of the policy tweaks in the RNC’s recent autopsy. Conversations with staff of some potential 2016 candidates suggest that their bosses are starting to grasp the political power of the issue. For a party desperately in need of both a messaging makeover and policy entrepreneurship, a push to end too-big-to-fail banks should be an idea too good to resist.
— James Pethokoukis, a columnist, blogs for the American Enterprise Institute.