The administration may be distancing itself from the Volcker Rules, but the same is not true of all Senators. (Why did President Obama go to the trouble of endorsing Mr. Volcker’s approach to limiting risk and size in the banking system, if his key implementers – led by Treasury Secretary Tim Geithner – were going to back down so quickly?)
Among a number of sensible amendments under development in the Senate, Senator Sherrod Brown (D., OH) proposes the following language: (update: text now attached)
“LIMIT ON LIABILITIES FOR BANK HOLDING COMPANIES AND FINANCIAL COMPANIES.—No bank holding company may possess non-deposit liabilities exceeding 3 percent of the annual gross domestic product of the United States.”
And a few paragraphs later, an essential point is made clear: this includes derivatives,
“OFF-BALANCE-SHEET LIABILITIES.—The computation of the limit established under subsection (a) shall take into account off-balance-sheet liabilities.”
And there is a strong provision for requiring prompt corrective action if any bank exceeds this hard size cap.
Naturally, the Federal Reserve is pushing back. Continue reading