SHERMAN OAKS (CBSLA.com) — A San Fernando Valley Congressman is backing legislation to keep the nation’s biggest banks from threatening the stability of the financial system in the event of a collapse.
Rep. Brad Sherman (D-Sherman Oaks) reintroduced the “Too Big to Fail, Too Big to Exist Act”, which would require any financial institution that is too big to fail to be broken up and reorganized to avoid more government bailouts and future risk to the economy.
House Resolution 4963 (PDF) would require the Secretary of the Treasury to identify – and ultimately break up – institutions that are deemed too big to fail within 90 days of the bill’s enactment to avoid the potential for a future government bailout and undue risk to our nation’s economy.
The phrase “too big to fail” refers to any entity “that has grown so large that its failure would have a catastrophic effect on the stability of either the financial system or the United States economy without substantial government assistance,” according to Sherman.
Sherman reintroduced the bill in the House, while Senator Bernie Sanders (I-VT) brought the bill before the Senate.
The Senate recently passed an amendment unanimously to its budget resolution to end subsidies or funding advantages for institutions over $500 billion in assets, but that legislation has not yet become law.
Sherman told KNX 1070 NEWSRADIO the legislation is aimed at avoiding a repeat of 2008 when major banks teetered on the brink of collapse.
“This is important because the market perceives these banks as having an implied federal guarantee and provides capital to them at 80 basis points less than would be the case otherwise,” said Sherman. “That gives them an unfair advantage, it also creates the real possibility that we would have to bail them out if they got in trouble.”
It was unclear when the House would vote on HR 4963.