masterN17 (< 20)

Dianne Feinstein's justification for opposing the SAFE Banking Amendment

May 28, 2010 – Comments (0)

Hello community,

I don't do the whole CAPS thing or post a whole lot but I am a daily reader. Recently I have been enjoying Morgan Housel's vitriol against the corrupt Senate-Wall Street financial orgy and when he posted the 61 senators voting against the SAFE amendment limiting bank sizes I took the opportunity to write Dianne Feinstein (one of my Senators) expressing my malcontent with her decision. Today I received a response and I thought it only appropriate to share with the community responsible for my financial awareness. So here it is.

(I wish I had saved what I wrote to her. It was a firm expression of disapproval but polite and far from the common Internet trollery often seen here.)

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Dear XXXXXXX:

Thank you for contacting me to express your support for the "Safe, Accountable, Fair, and Efficient (SAFE) Banking Act of 2010" (S. 3241). I appreciate hearing your thoughts about Wall Street regulation and welcome this opportunity to respond. 

On May 20, 2010, the Senate passed its version of comprehensive Wall Street reform legislation known as the "Restoring American Financial Stability Act of 2010. One of the most significant reforms of this bill is the creation of a Financial Stability Oversight Council to monitor systemic risk posed by financial institutions deemed "too big to fail." This regulator would have the authority, in conjunction with the Federal Reserve, to break up institutions that pose a threat to the overall stability of the economy.  

I understand that you are concerned that this bill would not adequately address the impact of "too big to fail" financial institutions. Senators Sherrod Brown (D-OH) and Edward E. Kaufman (D-DE) offered a modified version of the SAFE Banking Act as an amendment to the Wall Street reform bill.  It would have limited the amount of deposits a bank could hold to 10 percent of all federally insured deposits in the U.S. and limited non-deposit liabilities to two percent of U.S. gross domestic product (roughly $280 billion).  Non-bank financial institutions, such as investment banks, would have been restricted to holding liabilities to no more than three percent of U.S. gross domestic product (roughly $420 billion).  This amendment would have also placed higher leverage limits on these institutions, which would require them to retain more capital.  

I certainly recognize that it is possible for some banks to grow so large that they pose a systemic risk to the economy.  However, I voted against this amendment because the consequences of it were not fully understood.  For instance, it could have had a serious impact on the availability of credit for homebuyers, small businesses, and students.  At a time when our economy is in the early stages of recovery, it is critical to ensure that credit is available to help businesses to expand and generate jobs for the 15 million unemployed in our country.  Additionally, linking a bank's liabilities to the size of the U.S. economy could prove unworkable because the economy fluctuates on a yearly basis.  Limiting the size of large banks alone would not address many of the underlying causes of the economic downturn, such as a large bank's substantial exposure to risky financial products.  

You may be interested to know that I was an original cosponsor of an amendment to the Wall Street reform bill offered by Senators Jeff Merkley (D-OR) and Carl Levin (D-MI) that would have prohibited federally-insured banks from engaging in high-risk proprietary trading.  The amendment would have effectively implemented what has come to be known as the Volcker Rule, named after former Federal Reserve Chairman Paul Volcker, and would have separated the traditional banking practices of deposit-taking banks from the more risky trading activities of hedge funds, private equity firms, and investment banks.  While this amendment was ultimately not included in the final bill that passed the Senate, Senator Dodd's legislation would also require the proposed Financial Stability Oversight Council to develop similar proprietary trading rules.  

Once again, thank you for writing. If you have any additional questions or concerns, please do not hesitate to contact my Washington, D.C. office at (202) 224-3841.  Best regards.

Sincerely yours,

Dianne Feinstein

United States Senator