Apparently not. Instead, he starts:
The best would be to eliminate Dodd-Frank's backstop.
I'm not sure what he means by "Dodd-Frank's backstop," because the bill provides no explicit backstop. In fact, it tries very hard to ensure that there won't be future bailouts, revoking the Fed's ability to rescue specific institutions. But the next thing he says is even more perplexing:
Congress should explore reforms now being considered by the U.K. to make the unwinding of its biggest banks less risky for the broader economy.
Oh, you mean like maybe a new mechanism that allows regulators to seize giant failing institutions and follow living wills that they had produced to wind them down as quickly and cleanly as possible? That's a great idea: and you can call it the "orderly liquidation authority." That name has a nice ring to it, since that's what the Dodd Frank bill called precisely this new mechanism it created through its second title.
Tax the Big Banks
But maybe this isn't what Huntsman means. He continues by suggesting that big banks should be forced to endure higher regulatory costs. He thinks this will encourage them to downsize. Maybe, but size provides significant competitive benefits to banks, which could exceed modestly higher regulatory costs. He suggests imposing a fee on these banks if they get too large. That money, he says, could be used to pay back taxpayers if they have to be bailed out. (I know, I thought he was against this too, but let's allow this slide.)
If you followed the financial regulation battle least year, then this proposal should sound familiar. Late versions of the bill included precisely such a provision -- it called for a tax on large institutions to create a $50 billion fund to pay for future bailouts. Republicans were against it, because it implied that bailouts would occur in the future, which nobody was willing to admit.
So the concept evolved. The version of the legislation that Democrats thought was final included a $19 billion tax on large banks and hedge funds to pay for the bill's costs. But in that form, the bill couldn't get through the Senate. The moderate Republican Senators who had agreed to vote for the legislation to avoid filibuster didn't realize that this tax-like provision was in there. So they balked, and Democrats were forced to drop the provision.
In other words, Huntsman here is arguing for something that not even centrist Republicans supported.
In practice, Dodd-Frank actually sort of accomplishes the end that Huntsman seeks through another means. It tells the financial stability council to force big banks to endure higher capital requirements than smaller banks. This change will go into effect once the Basel III capital requirements are adopted. And the big banks aren't pleased.
Limiting Leverage
But Huntsman does offer one good idea that didn't get much airtime throughout the financial regulation battle:
Congress could also implement tax reform that eliminates the deduction for interest payments that gives a preference to debt over equity, thus ending subsidies for excess leverage.
Absolutely. Yes. Let's do it. Leverage was a big problem. The higher capital requirements that Basel III will bring ought to help here a little. However, banks like leverage for reasons other than just the tax advantage: if you can borrow for cheaper than the return you can achieve on that borrowed capital, then you can make lots of money. And the more borrowing you do, the higher your return on capital. So this proposal, while a good idea, might not have a huge impact.
