Breaking Them Up Through Brown-Vitter.
Considering how important the availability of credit is to U.S. businesses and consumers, that is a rather chilling statement, implying that the banks don't do any of us any good. Moving beyond the populist rhetoric and the excellent television sound bites, the senators proposed that U.S. regulators "walk away" from the Basel III agreement, which has been signed by the U.S. and 26 other countries representing all major world economies. Rather than following Basel III's risk-based approach to capital requirements, Brown-Vitter would require banks with total assets of more than $500 million would be required to have common equity of at least 15% of total assets. If Brown-Vitter passes, the big banks, in the words of the senators, "will be faced with a clear choice: either become smaller or raise enough equity to ensure they can weather the next crisis without a bailout."
That last statement is contradicted by recent history: The failures of Bear Stearns, Lehman Brothers and even Washington Mutual were caused by liquidity shortages and not a lack of capital. For Bear Stearns and Lehman, reliance on overnight funding was an immediate problem, causing near instantaneous runs on those companies. This problem, and ways to prevent it, are discussed in part two.