Big Banks Face Most Pain Under House Bill
By Stacy Kaper
Bailed out, sometimes repeatedly, by the government and now confirmed as “too big to fail,” many of the largest banks are viewed as having benefited from the financial crisis. But under legislation expected to be approved by the House Financial Services Committee today, the largest firms would pay in myriad ways that could impede their growth, reduce their liquidity and drive up their costs, according to observers. The bill would require large firms to hold more capital; pay more in deposit insurance premiums; hold new, potentially expensive convertible debt instruments; pay assessments to a new systemic-risk insurance fund; and face restrictions on interaffiliate activities. The legislation also would make it easier for the government to fail them or break them up based on their size or interconnectivity. The bill comes on top of other measures due for consideration this month by the full House that would require bigger institutions to fund the creation of a separate consumer protection agency, make it harder for national banks to operate across state lines and require all standardized derivatives trades to be centrally cleared or go through exchanges. If the bills were enacted, “I think you would see most of the very large banking organizations pull themselves apart,” said Karen Shaw Petrou, the managing partner of Federal Financial Analytics. The legislation really would “force strategic reassessment for the largest bank holding companies.”