Senate Takes Swing at Big Banks

Big banks have something else to worry about when it comes to writing their “living wills.”

The Senate late Thursday night unanimously passed by voice vote an amendment to the budget directing Congress to take punitive measures against big banks that fail to craft credible plans for how they could collapse in bankruptcy without damaging the broader economy. The amendment was sponsored by Sens. Sherrod Brown (D., Ohio) and David Vitter (R., La.), a bipartisan duo that has long targeted the largest Wall Street firms for remaining “too big to fail,” or so large and interconnected the government would have no choice but to save them in another crisis.

Neither the Senate-passed budget — nor any of the amendments attached to it — are binding policy. But the unanimous vote underscores the political attention the so-called living wills have in Congress, increasing the pressure on regulators to dish out harsh medicine to those banks that can’t produce convincing road maps to their own demise.

Living wills are blueprints that big banks, as part of the 2010 Dodd Frank law, must provide to regulators showing how they could be dismantled without taxpayer support.

Regulators rebuked 11 of the largest U.S. banks last year for shortcomings in their plans and demanded significant progress in the next year. The Federal Reserve stopped short, however, of declaring the plans “not credible,” a finding that would lead to an escalating series of sanctions. The Federal Deposit Insurance Corp. did declare the plans not credible, but both regulators must agree for the consequences to kick in. Some lawmakers have pushed regulators to be more aggressive in using their powers to levy tougher restrictions and even force the breakup of banks that don’t produce credible plans.

The Brown-Vitter amendment applied to banks with more than $500 billion in assets, and directed Congress to “better protect taxpayers” against those banks without credible living wills by subjecting those banks with higher capital standards, restrictions on growth or activities and even to break them up.