Sunday, November 27, 2011


Huntsman HAS A plan TO call for placing a hard cap on bank size, defined as the bank's total assets as a share of the U.S. economy. The biggest American banks have grown massively larger since the 1980s, and have actually increased in size since the bailouts of 2008 -- which policymakers insisted were necessary due to the sheer size of major Wall Street banks. The proposal also would impose a hard cap on bank leverage, the amount of money a bank could borrow against its pure equity. Banks will have to limit their leverage under an international reform agreement known as Basel III, but they would nevertheless be permitted to gamble higher raters of borrowed money than Lehman Brothers did shortly before the mega bank went bankrupt.
The program would also adjust calculations relating to the FDIC's program to shut down failing banks. Currently, banks pay a regular insurance premium to the FDIC, which the federal agency can use to pay off the bank's creditors if it fails. Huntsman would have banks that engage in riskier activities pay more money into the FDIC fund than more conventional lenders do. He would also adjust the FDIC's policies for shutting down failing banks when they are particularly large.
The Dodd-Frank financial reform bill grants the FDIC the ability to shut-down complex banks like Goldman Sachs or Bank of America, which engage in both securities trading and conventional lending. Prior to the legislation, the FDIC could only shut down conventional lenders that accept deposits and make loans. But economists have questioned the viability of such a program with regard to big banks that operate in multiple nationalities. Big American banks operate all over the globe, and the wind-down policies required by the United States government would not carry the force of law in Europe or South America.
Huntsman would also encourage banks to shrink by charging additional taxes on banks that get too big. But unlike progressive proposals to do the same, Huntsman would explicitly devote this bank tax revenue toward lowering the overall corporate tax rate. In effect, Huntsman would marry a major progressive bank reform wish with a conservative wish -- shrinking Wall Street's influence while cutting corporate taxes.

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