Senator Sherrod Brown, an Ohio Democrat, said in an interview with Peter Cook for Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend, that support is increasing for his proposal to shrink the size of U.S. banks as part of broader legislation overhauling the rules governing Wall Street.
(This is not a legal transcript. Bloomberg LP cannot guarantee its accuracy.)
PETER COOK: Welcome to Political Capital. I’m Peter Cook filling in for Al Hunt this week. We begin with one of the lawmakers trying to write new rules of the road for Wall Street, Ohio Democratic Senator Sherrod Brown. He joins me here on Capitol Hill. Welcome back to Bloomberg.
SENATOR SHERROD BROWN: Good to be back. Thanks.
COOK: Republicans ended their filibuster this week allowing Democrats to bring their bill to the floor. The first question for you: What assurances can you offer Americans that this legislation as it’s currently constructed will prevent another financial crisis?
BROWN: Well, I think there’s - we’re going to start off with an amendment by Senator Boxer next week to say no public dollars may be used for a bailout; period. I think this bill sets up provisions to make sure if there is a large failing bank that there’s ways to do what’s called resolution to take that bank apart without risk to the financial industry and most importantly to the economy.
And my amendment, which will work to keep the banks from getting so large to begin with, because I think too big to fail really means too big; period. And we need to make sure the banks don’t get so big that combined with risk can be a real threat to the system.
COOK: You’re one of those lawmakers trying to toughen this legislation. Walk me through your proposal because it has been described to me as the Volcker rule on steroids.
BROWN: Well, the Volcker rule says basically that proprietary trading can’t be done by banks that would be betting against themselves if you would.
Our amendment simply says if banks - that banks can’t get too large. An incredible statistic - 15 years ago the six largest banks in the U.S., their combined assets totaled 17 percent of GDP. Today the six largest banks total assets total 63 percent of GDP.
That tells me and it tells even people like Alan Greenspan and Paul Volcker and the chairman of the Fed, the president of the Fed in Kansas City and Dallas and other places, a lot of mainstream economists, that says that those banks are simply too big. That kind of economic power housed in a concentrated small number of banks - humongous national banks, can be a threat to the system.
We clearly need to deal with risk. That’s the most important component, but another determinate is that kind of size and we just can’t take the chance of letting that happen.
COOK: As I understand it, your proposal would limit banks to 2 percent of GDP, their non-deposit liabilities. There are a lot of banks right now - big ones that would not meet that test. You’re calling for basically those banks to start divesting.
BROWN: There would be six banks - there would be five banks right now we think that would be above that limit; either that or holding 10 percent of the deposits - of national deposits if you will. And those banks would have to - they’ve had three years to do this, so it wouldn’t immediately say here’s what you’ve got to do.
And they would work with the Federal Reserve on how to either divest themselves of some of their regional branches or branches in a region or to find ways to get out of one line of business or whatever. But otherwise we’re going to see these banks grow and grow. And if it’s at 63 percent of GDP today, what is it going to be a year from now or five years from now? We can’t afford to take that risk to the financial system.
COOK: What’s your response to those who say listen big is not necessarily the most evil thing in this whole system? There are some Ohio manufacturers who might like a big bank - a big international bank that offers them certain products, certain services that they cannot get somewhere else.
BROWN: They can get them somewhere else. These are - we’re talking about banks that are over a $1 trillion - a thousand billion dollars in assets and there are - they’re pretty provably, according to most observers, no real signs of efficiencies above a certain level. When you get plenty of economic efficiencies with a bank of $200 billion or $600 billion or $800 billion, you don’t need a bank of $2 trillion - 2 thousand billion dollars - to get those efficiencies.
So every manufacturer, international or domestic, or anybody else that wants to borrow huge amounts of money, that wants a relationship and a service from one of these behemoth banks a hundreds-of-billions-of-dollars-size bank is plenty big to get the economies of scale.
COOK: Do you think you have the votes for this on the floor?
BROWN: I don’t think we do yet. I think a week ago we weren’t even close. I think this - going into this weekend we’re closer. I think by next week, as people have watched the Goldman hearings, if people hear these statistics like 63 percent of GDP their combined assets, as people hear the debate on this I think senators of both parties increasingly are going to join Senator Kaufman and me in moving forward on this amendment.
COOK: Let me ask you about some other parts of this. Derivatives, very complicated. There’s even some talk the White House is pushing for you also to water this down a little bit, to not make it as tough as it is. Are you going to resist that?
BROWN: Yes, I don’t - I think the White House is not going to work to water it down. I think the White House on some areas they may want to go further, other areas they don’t.
But I think they’ve done this - I think they learned from health care that it is important to engage earlier. They’ve been on the Hill. They’ve been working this. And, you know, the president going to Wall Street helped and the president - Wall Street is not going to be happy with this legislation. I think if they are too happy it means we didn’t do our jobs.
COOK: Consumer protection - Republicans still make the case, this is too much of a reach from the federal government, too much bureaucracy. And my understanding is you may even have had Ohio car dealers come to your office and say listen, this does go too far. This would affect us, not just Wall Street. Does it go too far? Are you worried about that at all?
BROWN: No, it does not affect car dealers. This is for financial institutions. You know, this started back in December when John Boehner, the Republican leader from my state, from the Hamilton, Middletown, Ohio area. When Congressman Boehner met with a hundred Wall Street - a hundred bank lobbyists.
Then a couple of weeks ago when Mitch McConnell, the Republican leader, and John Cornyn, the head of the Republican Senate Campaign Committee, went to Wall Street and met with 25 hedge fund and other Wall Street executives to talk about how to kill the bill.
I mean they’re going to try anything. They don’t want consumer protection. They don’t want derivatives regulated. They don’t want too big to fail to keep - they don’t want to keep down the size of banks.
I mean they’re doing - not all Republicans, because we’re going to get some of their votes. George Voinovich, for instance, from my state has been stepping up on this. But Republican leaders are doing the bidding of their benefactors and their benefactors happen to be Wall Street banks.
COOK: At the end of the day, is this bill when it leaves the Senate floor going to be tougher than it is now or weaker?
BROWN: It’s going to be tougher than it is now. It’s going to be tougher than the House bill. It’ll come out of conference. It’ll be something I’m proud to vote for and something the President is proud to sign.
COOK: And no doubt in your mind this gets done this year?
BROWN: This is going to get done by the end of May of this year.
COOK: Let me ask you. A related topic on your work on the banking committee - China, the currency situation. Do you have any assurances from the Obama administration that if China hasn’t moved on its currency by the end of June, by the G20, that they’re going to back some sort of action out of Congress?
BROWN: I spoke with Secretary Geithner this week exactly about the China currency issue. The administration is not going as far as I would like them to. I think the pressure of this bill is going to help move the Chinese towards strengthening their currency, which will help exports.
From solar energy exports from Toledo - the solar - they’re the solar capital of the United States right now - will help them export to China, will help other countries - or other companies in my state and across the country export to China because they’ve gamed the system and we’ve got to stand up to them.
COOK: Let me ask you one final important question. How worried are you as a big Cleveland Cavaliers fan about LeBron’s elbow?
BROWN: LeBron’s elbow is going to be all right. It was interesting to watch him shoot that foul shot left handed, but he’s going to be fine.
COOK: Didn’t look good, did it?
BROWN: He can be in pain and still play better than anybody else in the NBA.
COOK: Senator Sherrod Brown, thank you very much for your time - I appreciate it.
BROWN: Thanks, Peter.
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