A banking industry lobbyist I spoke with this evening alerts me to a fascinating development in the House Financial Services Committee: Pennsylvania Rep. Paul Kanjorski is about to introduce an amendment to the systemic risk bill moving through the committee (see my discussion here and here) that would give regulators the power to break up too-big-to-fail firms. The details are a little unclear--as it stands, the current bill would give the Fed some vague powers in this vein. But the soon-to-be Kanjorski amendment appears to go much further, and the banks are freaking out about it. As the lobbyist told me, "He wants to effectively go back to Glass-Steagall"--the Depression-era law that separated commercial and investment banking. "That was a little unexpected. It sort of ... threw people for a loop."
Bloomberg has the rough outline:
Representative Paul Kanjorski said today regulators should get authority to dismantle firms, preventing them from getting so big their collapse would harm the financial system. He said he is coordinating with the European Union, which is forcing asset sales by state-aided banks to limit their advantage. ...
The committee today began considering a bill, proposed last week by Chairman Barney Frank, that would let the Federal Reserve limit company size by forcing the sale and transfer of assets and off-balance-sheet items at firms whose collapse would pose a risk to the economy. The Fed would have power to stop some activities by institutions.
“That’s a very limited power,” Kanjorski said of Frank’s plan. “It’s not clearly defined. We’re going to be very evident as to how.”
Frank’s provision on the Fed only applies to holding companies, while Kanjorski said his proposal will apply to all U.S. financial institutions.
I'll update if I find out more.
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