By Simon Johnson
Substantive discussion in the House-Senate financial reform reconciliation conference is focusing on the Lincoln amendment, with some back-and-forth on the Volcker Rule (as manifest in the Merkley-Levin amendment). The FT reports today that Paul Volcker is no longer opposed to the Lincoln approach – now it has become clear that this is really just about (substantially) raising the capital that banks need to back derivatives trading. And the influential Tom Hoenig, of the Kansas City Fed, appears to be strongly in the Lincoln camp.
While our most experienced regulators weigh in, the lobbyists start to struggle. The mobilization of broader support against gutting the legislation also helps – the earlier Senate debate has raised sensitivity levels and there is a new concentration to the public scrutiny. The reconciliation process itself is much more open than would ordinarily be the case – a result of outside pressure.
But amidst all this excitement and potential moving parts, don’t forget about the Kanjorski amendment (not currently on the list of most prominent topics).
The Kanjorski amendment would greatly strengthen the hand of regulators vis-à-vis big banks and further reinforce their power to break up those banks. This is not, unfortunately, the same thing as the Brown-Kaufman amendment, which would have broken up the largest six banks outright.
Still, the Kanjorski amendment is important for the next time that one or more major banks get into serious trouble. Judging from their current swagger and the slogans you hear from top bankers (“our risk management is now simply amazing”), we only have to wait a few years for the next bailout cycle.
A great deal of discretion would remain with the regulators, and of course this is a potential danger. But the heightened public awareness of the idea that “bailouts are bad” at least increases the chances that management and directors would be replaced in a failing megabank. Whether creditors would face any losses remains a more open question – but at least the Kanjorski amendment, if applied properly, would put that possibility firmly on the table.
Brown-Kaufman was turned back on the Senate floor, but the Kanjorski amendment is an integral part of the financial reform bill that passed the House. And Congressman Paul Kanjorski is a formidable member of the House conference delegation.
When you argue and push hard this week for the Lincoln amendment and for Volcker-Merkley-Levin, don’t forget to also push for the Kanjorski amendment.