The SAFE Banking Act proposed by Sens. Brown and Kaufman (which should be introduced soon as an amendment to the Senate financial regulation bill) answers the Too Big to Fail conundrum decisively by capping each bank's deposits at 10% of total deposits in the country. That doesn't hit many banks, since the country's largest commercial bank, Bank of America, has about 12% of total deposits. But here's the game-changer. The law would also create two ceilings on liabilities: non-deposit liabilities are capped at 2% of GDP for banks and 3% of GDP for non-banks.
What does that mean? It means banks and non-banks with huge obligations in the repo market and other shadow bank industry deposits would have to dramatically reduce their size. Let's take a look at how drastic the change would be (this graph below thanks to the invaluable Mike Konczal). Here's how the graph works. If you're in the green zone, you're safe under SAFE. Wells Fargo makes it, barely. The rest would have X amount of time to slim down their liabilities or break apart to avoid whatever punishment mechanism Congress chose to implement.
Too draconian? Maybe. But Demos points out that Bank of America, which currently has more than 7 percent of GDP in non-deposit liabilities, was around 2 percent in 2003.