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As president, Governor Huntsman will work with Congress to implement one or more of the following:
http://www.jon2012.com/index.php/iss...oo-big-to-fail
As president, Governor Huntsman will work with Congress to implement one or more of the following:
- Set a hard cap on bank size based on assets as a percentage of GDP. (This cap would be on total bank size, not using any of the illusory “risk-weights” currently central to thinking about bank accounting. The lowest risk assets for banks in Europe, supposedly, are sovereign debt - yet this very same debt is now at the heart of the current crisis.)
- We should have a similar cap on leverage - total borrowing - by any individual bank, relative to GDP. In some European countries, one bank can bring down the nation. Why would we want such unfair and inefficient arrangements in America?
- Explore reforms now being considered by the U.K. to make the unwinding of its biggest banks less risky for the broader economy.
- Impose a fee on banks whose size exceeds a certain percentage of GDP to cover the cost they would impose on taxpayers in a bailout, thus eliminating the implicit subsidy of their too-big-to-fail status. The fee would incentivize the major banks to slim themselves down; failure to do so would result in increasing the fee until the banks are systemically safe. Any fees collected would be used to reduce taxes for the broader non-financial corporate sector.
- In addition, focus on establishing an FDIC insurance premium that better reflects the riskiness of banks’ portfolios. This would provide an incentive for banks to scale down, allowing the financial system to absorb them organically in the event of a collapse.
- Strengthen capital requirements, moving far beyond what is envisioned in the current Basel Accord. The Accord is a mixture of regulatory oversight and political compromise. As a result, the U.S. has allowed its banking policy to be determined by the “least common denominator” among European and Asian countries, many with a long history of not being prudent. We want a financial system that has more equity financing and relatively little debt financing.
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