Senator Harry Reid told reporters he is leaning toward voting for an amendment to the financial regulation bill that would force some of the nation's largest banks to break up, including Bank of America and Goldman Sachs. With Sen. Dick Durbin's endorsement, this means the top two Democrats could vote for what's known as the SAFE Banking amendment. Make no mistake: SAFE would fundamentally change Wall Street.
Here's what the amendment says: First, it sets leverage limits at 16:1. Second, it caps one bank's share of total US deposits at 10%. Today that would only impact Bank of America, which holds about 12% of total deposits. Third -- and this is the big one -- it would reduce the max amount of non-deposit liabilities to 2% of US GDP for banks (like JPMorgan, BofA), and 3% of GDP for non-bank institutions (like Goldman Sachs).
Basically, this rule is explicitly designed to break up the largest, most famous banks on Wall Street. Check out this graph (via Konczal) to see who gets hit. If you're a bank in the green zone, you're safe under SAFE. Congratulations to Wells Fargo! Everybody else is in trouble, especially BofA.
We'll leave it to the Politics Channel to suss out Reid's political motivations for tepidly supporting SAFE. For now, it's worth noting that if this amendment makes its way into the final bill, it has the effect of making the derivatives language somewhat less dire. Sen. Blanche Lincoln's rule would force banks to sever their derivatives-trading operations from the rest of the institution. But if banks like Goldman and JPMorgan have to split up into two or three pieces anyway to meet the non-deposit liability limits, they'll have much bigger organizational concerns over the next decade than how to spin off their derivatives desks.
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