[Occupymendocino] a petition to make big banks less risky. In your comment, ask that the banks be required to collateralize deposits at 90% collateral to prevent risks.
ELLEN ROSSER
ellen.rosser at gmail.com
Tue Oct 22 21:44:03 PDT 2013
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Your Opportunity To Stop Big Bank Bailouts
Inbox
x
Rep. Alan Grayson
via<http://support.google.com/mail/bin/answer.py?hl=en&answer=1311182&ctx=mail>
bounce.exacttarget.com
2:32 PM (7 hours ago)
to me
**
<http://cl.exct.net/?qs=c1cd6b0ac728dbf0aabb807d6479bf1e9ef5c45480d580b63c6811f14dac97d3>
*
*
*I Agree, and I Don't Even Wear
Lipstick.*<http://cl.exct.net/?qs=c1cd6b0ac728dbf0aabb807d6479bf1e9ef5c45480d580b63c6811f14dac97d3>
Dear Ellen,
I've found an interesting and novel way to *end Wall Street
bailouts,<http://cl.exct.net/?qs=c1cd6b0ac728dbf0aabb807d6479bf1e9ef5c45480d580b63c6811f14dac97d3>
* and prove once and for all that no bank is "too big to fail." And *I need
your help.<http://cl.exct.net/?qs=c1cd6b0ac728dbf0aabb807d6479bf1e9ef5c45480d580b63c6811f14dac97d3>
* This is a bit complex, but I think you'll find that this is a unique
opportunity for you and me to make a difference.
Here's the story:
Recently, federal bank regulators proposed a new rule that would place
strong new restrictions on the eight biggest banks in the country. Right
now, these banks and their risky ventures are in essence subsidized by the
taxpayers, because their own lenders believe that the taxpayers will bail
out these banks if they go broke. *Wall Street bankers rake in big bonuses
by playing a game of chance - heads, they win; tails, we
lose.<http://cl.exct.net/?qs=c1cd6b0ac728dbf0aabb807d6479bf1e9ef5c45480d580b63c6811f14dac97d3>
*
The new rule says that these banks need to maintain a larger buffer to
cover their speculative bets, to *make sure that they don't gamble with our
money.<http://cl.exct.net/?qs=c1cd6b0ac728dbf0aabb807d6479bf1e9ef5c45480d580b63c6811f14dac97d3>
* JP Morgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs,
Morgan Stanley, Bank of New York Mellon and State Street would have to put
up $89 billion to guard against unforeseen losses. This would make the
banks much safer. And *after the 2008 wipeout, which destroyed 20% of
America's net worth in 18 months, that's a good
thing.<http://cl.exct.net/?qs=c1cd6b0ac728dbf0aabb807d6479bf1e9ef5c45480d580b63c6811f14dac97d3>
*
Before this rule can go into effect, there's a comment period during which
bank regulators have to invite feedback from the public. Often, this period
is dominated by big bank lobbyists, who whine incessantly against whatever
they don't like. And in this case, *Wall Street already has mobilized its
Republican hirelings in Congress to go on the attack against this
rule,<http://cl.exct.net/?qs=c1cd6b0ac728dbf0aabb807d6479bf1e9ef5c45480d580b63c6811f14dac97d3>
* because they don't think that the public is paying attention.
But *some of us are paying
attention.<http://cl.exct.net/?qs=c1cd6b0ac728dbf0aabb807d6479bf1e9ef5c45480d580b63c6811f14dac97d3>
* Congressman John Conyers and I have written a letter asking the
government to enforce this new rule. Not only do we want it enforced, but
we want to make it even stronger!
*That's where you come
in.<http://cl.exct.net/?qs=c1cd6b0ac728dbf0aabb807d6479bf1e9ef5c45480d580b63c6811f14dac97d3>
*
*We need you to join
us.<http://cl.exct.net/?qs=c1cd6b0ac728dbf0aabb807d6479bf1e9ef5c45480d580b63c6811f14dac97d3>
*
We'd like you to co-sign our letter. Tell the government that big
banks on *Wall
Street shouldn't gamble with your
money.<http://cl.exct.net/?qs=c1cd6b0ac728dbf0aabb807d6479bf1e9ef5c45480d580b63c6811f14dac97d3>
*
Your support matters - it demonstrates that the public is weighing in, and
it gives the government regulators the spine to stand up to big banks.
Without us, the regulators will think that the banks are the only ones
paying attention. If thousands of us show that we care, we will embolden
the regulators to crack down on Wall Street's taxpayer-funded, high-finance
casinos.
So *sign our letter. You can even add your own
comment.<http://cl.exct.net/?qs=c1cd6b0ac728dbf0aabb807d6479bf1e9ef5c45480d580b63c6811f14dac97d3>
*
I will submit this letter, along with your signatures and comments, to the
bank regulators. We've been in touch with them, and they've asked to hear
what we have to say.
*Let's tell them. Together. Click here to do
it.<http://cl.exct.net/?qs=c1cd6b0ac728dbf0aabb807d6479bf1e9ef5c45480d580b63c6811f14dac97d3>
*
And thanks for your help.
Courage,
Alan Grayson
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[image: logo.png] <http://nobankwelfare.com/>
*No Bank Welfare*
*SIGN THE PETITION*
*First Name ****
first name*
*Last Name ****
last name*
*Email Address ****
*Zip Code ****
zip code*
*Comments*
comments
*9071 people have signed our petition -*
*91% toward our goal of 10000!*
*SUPPORTERS*
*9,071*
*Constance B.* Philadelphia, PA
October 23, 2013 - 12:12am
*9,070*
*Linda K.*
October 23, 2013 - 12:12am
*9,069*
*heidi s.* Centennial, CO
I am sick of seeing banks and their CEO's avoid criminal prosecution, all
the while paying fines for what a regular person would go to jail for the
rest of their life for..I will not stop demanding criminal prosecution of
these banks
October 23, 2013 - 12:12am
*9,068*
*Christine C.* San Francisco, CA
October 23, 2013 - 12:12am
*9,067*
*Pamela P.* Vale, OR
October 23, 2013 - 12:12am
*9,066*
*Ellen K.* Oregon City, OR
NO BANK WELFARE.
October 23, 2013 - 12:12am
*#NoBankWelfare*
- I cosigned Rep. Grayson and Rep. Conyers' letter to make sure big
banks don't gamble with our money. NoBankWelfare dot com
#NoBankWelfare<https://twitter.com/search?q=%23NoBankWelfare>— 44 min
31 sec ago
- Think a bank CEO getting 10s of millions the SAME yr. his bank goes
bust is crap? Do something about it
#NoBankWelfare<https://twitter.com/search?q=%23NoBankWelfare>.com — 46
min 41 sec ago
- I cosigned Rep. Grayson and Rep. Conyers' letter to make sure big
banks don't gamble with our money. http://t.co/McAQPeu1oh
#NoBankWelfare<https://twitter.com/search?q=%23NoBankWelfare>— 57 min
37 sec ago
*more* <http://nobankwelfare.com/tweets-raw>
Federal bank regulators have proposed a rule that would place strong
restrictions on the eight biggest banks in the country. The new rule
requires these banks to maintain a larger buffer to cover any risky bets -
which ensures that they don't gamble with our money. Federal bank
regulators are requesting feedback from you, the public, on this proposed
rule. Co-sign our letter to tell them they're on the right track - and
demand that big banks stop gambling with our money.
*Petition:* "Big banks shouldn't gamble with our money. Twenty percent of
America's net worth was destroyed in the 2008 financial meltdown - that
should never happen again. I am co-signing the Grayson-Conyers letter to
make sure big banks stop gambling with my money."
*Read the Letter*
Like
Like
639
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*CONTRIBUTE »*<https://secure.actblue.com/contribute/page/alangraysonforcongress?refcode=NBWPetition1&amount=25.00>
Paid for by the Committee to Elect Alan Grayson
Privacy Policy <http://nobankwelfare.com/privacy-policy>
The Honorable Thomas Curry
Comptroller of the Currency
Office of the Comptroller of the Currency
400 7th Street SW, Suite 3E-218
Washington, D.C. 20219
The Honorable Ben Bernanke
Chairman
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, N.W.
Washington, D.C. 20551
The Honorable Martin J. Gruenberg
Federal Deposit Insurance Corporation
550 17th Street NW
Washington, DC 20429-9990
Dear Comptroller Curry, Chairman Bernanke, and Chairman Gruenberg:
We write to commend you for tackling a core problem in our financial
system: too much gambling with other people’s money, by banks that are
often regarded as too big to fail. As Andrew Haldane, the Executive
Director for Financial Stability for the Bank of England, has noted, every
financial crisis has one critical ingredient: excess leverage. This is
because a financial institution with a lot of equity can absorb unexpected
losses, whereas one with too much debt relative to its equity will fail in
the face of financial stress.
We think that the standard you have proposed, a supplementary leverage
ratio (SLR), is less prone to manipulation and more likely to succeed than
many alternatives. At the same time, we also believe that the proposed
ratio is simply too low. As Nobel Prize winner Eugene Fama recently argued,
"The simple solution is to make sure these firms have a lot more equity
capital -- not a little more, but a lot more -- so they are not playing
with other people's money.” We agree.
The problem the proposed rule addresses is as follows: A system in which
banks or bank-like institutions are tightly coupled with one another, and
in which those institutions have too much debt relative to equity, is prone
to meltdowns that can spill into the real economy and cause massive damage.
Whether these liabilities are in the form of derivatives and
off-balance-sheet assets or overvalued tulips pledged as collateral, too
much debt without loss-absorbing equity to match it is simply too dangerous
to exist.
It is difficult to measure the exact cost to society of our
undercapitalized large banks blowing up during the most recent financial
crisis, but it was certainly enormous. The nonprofit advocacy and research
group Better Markets pegged the cost at roughly $12 trillion, whereas the
U.S. Government Accountability Office put it at $22 trillion. Regardless of
which figure one uses, it is obvious that the United States is a much
poorer society because there was too much leverage backed by over-valued
collateral in our financial system. The proposed rule strikes at this
problem.
Of course, all capital and accounting standards are not created equal, and
many are prone to manipulation, especially during a crisis. For example, in
2009, the Financial Accounting Standards Board (FASB) Chairman Robert Herz
complained of getting “calls and visits from some of those institutions
that are now in government hands, about two weeks before they get taken
over, trying to get the accounting [standards] changed.” It is critical to
set standards that are as simple and strong as possible, so as to reduce
the pressure on regulatory bodies to allow bad actors into the market, as
well as to create sufficient information in the market to ensure that
investors are pricing risk accurately.
The proposed rule by the Office of the Comptroller of the Currency (OCC),
the Board of Governors of the Federal Reserve System (Board), and the
Federal Deposit Insurance Corporation (FDIC) would require large,
systemically important financial institutions (SIFIs) to hold more equity
relative to their amount of debt. This rule would require the application
of the SLR to the institution’s balance sheet, in addition to a
risk-adjusted capital ratio. An SLR measures a financial institution’s tier
one capital against its total assets. A risk-adjusted capital ratio
measures a financial institution’s capital base against assets that are
adjusted by regulators based on how risky they are perceived to be.
According to the rule, SIFIs would be required to have a minimum
capitalization of 3%; to be allowed capital distributions and executive
bonuses, the capitalization would be higher, at 6% for the holding company.
An earlier rule proposed a minimum amount for the SLR. This rule would
define the amount required for an institution to be deemed well-capitalized
and able to pay out executive bonuses and dividends. It only applies to
bank holding companies (BHCs) with more than $700 billion of consolidated
assets or over $10 trillion in assets under custody. The institutions to
which this rule would apply are Citigroup Inc.; JPMorgan Chase & Co.; Bank
of America Corporation; The Bank of New York Mellon Corporation; Goldman
Sachs Group Inc.; Morgan Stanley; State Street Corporation; and Wells Fargo
& Company. These are the institutions that are often regarded as “too big
to fail.”
We believe that an SLR is a more accurate measurement of how much risk a
financial institution is actually taking on, versus using risk-based
capital.
In a crisis, as former FDIC Chairman Sheila Bair has observed, the market
cares about the leverage ratio, not risk-adjusted capital. Risk weights are
prone to manipulation by internal bank models. As the Vice-Chairman of the
Federal Deposit Insurance Corporation (FDIC), Tom Hoenig, has noted, there
was a “steady downward trend in risk weights and upward trend in leverage
leading into the crisis.” And less-capitalized banks manipulated risk
weights after their internal models were approved by regulators. The use of
a leverage ratio in the United States by regulators meant that American
banks were, relatively speaking, better capitalized than their European
counterparts.
Risk-weighted capital ratios also have the added downside of increasing,
rather than reducing, systemic risk. Regulators deemed certain asset
classes as less risky than others. Mortgage backed securities, sovereign
debt of Zone A states, agency debt, and interbank debt all effectively
received subsidies because regulators determined that banks had to hold
limited capital against them. Thus, a crisis beginning in mortgage debt
spread through agency debt, interbank debt and into sovereign debt.
Risk-adjusted capital allowed banks to treat Greek sovereign debt as
bearing the same risk as German sovereign debt. Regulators cannot predict
the future, but risk-adjusted capital models require them to. Leverage
ratios do not.
As you continue crafting and applying this rule, we believe several
principles should apply:
1) *When in Doubt, Require More Capital*: Insufficient capital
requirements for banking institutions might increase the return on equity
of specific institutions and help bank executives garner bonuses, but it
also caused a multi-trillion-dollar financial crisis. Erring on the side of
requiring too little capital is not a risk worth taking. It makes no sense
that smaller, simpler, less complex banks that have no implicit backstop
are better capitalized than large, opaque, and systemically significant
institutions that have sprawling international operations and an undeserved
taxpayer-enabled funding advantage.
Stanford University professor Anat Admati recommends that large banks hold
capital levels of 20 percent. Tom Hoenig has pointed out that the average
Tier 1 leverage ratio for banks that have between $250 million and $10
billion in assets is a little under 10 percent. A 6% ratio, with a 3%
minimum threshold, is insufficient. We urge you to increase the SLR
substantially for large institutions, in accordance with bipartisan
legislation backed by Senators Sherrod Brown and David Vitter.
2) *Set the Highest Possible Standards*: Setting high capital
standards is critical; in a crisis, simplicity matters. An SLR is simpler
and easier to understand than a risk-based capital ratio. Therefore, we
think an SLR should be the primary measure for regulators, and that
risk-based capital standards should be the backstop. During a crisis,
investors believed the leverage ratio, whereas they did not trust
risk-based capital.
Ensuring that the SLR is a high-quality ratio is also critical. The
numerator in the ratio should be Common Equity Tier 1 capital. In addition,
the SLR should conform to the proposed Basel revision of leverage ratio
(from consultative document issued June 2013). The Basil revision updates
capital standards for derivatives and off-balance sheet assets, although
we’d prefer the use of the more cautious International Financial Reporting
Standards (IFRS) when accounting for derivatives exposure as opposed to
Generally Accepted Accounting Principles (GAAP). Regulators should also
ensure that loan loss reserves and deferred tax credits are not being
included as a part of an institution’s regulatory capital.
3) *Cast a Wide Net*: The application of the Supplementary Leverage
Ratio should be extended beyond the largest financial institutions. The
Savings and Loan crisis involved thrifts that were not particularly large,
but it still was costly to certain regional economies. The fall of Long
Term Capital Management, a highly leveraged hedge fund, created enormous
problems for the large banks and nearly required a massive bailout. In a
deeply interconnected system without the firewalls of Glass-Steagall, the
risks of inadequate capitalization are not confined solely to the largest
institutions or solely to banks. Regulators should consider using their
authority to extend it beyond the largest financial institutions, and into
institutions that are smaller institutions that are nonetheless an integral
part of the financial system.
4) *No Self-Regulation*: There should be no self-regulation when it
comes to setting capital standards. Large banks are asking that
requirements to hold capital against derivatives exposure be calculated
based on internal bank models, which include the use of Value-At-Risk (VAR)
calculations. Internal bank models are prone to manipulation, and VAR fails
precisely when a financial crisis hits.
This is also why banks should not be allowed to net between trading and
banking books. We believe that the more reasonable firewalls there are
within and between institutions, the less interconnected the system is, and
the less risk it poses to the real economy.
In addition, we think that it is problematic to treat insured depository
institutions (IDIs) that are subsidiaries of bank holding companies
differently from the holding companies themselves. There is no reason for a
5% ratio for the IDIs and a 6% ratio for the holding company. This is an
invitation to regulatory arbitrage.
Once again, we thank you for your attention to this matter. Inadequate
capitalization of large financial institutions was at the heart of the
financial crisis. Thank you for your work to address this critical problem.
Sincerely,
Alan Grayson
Member of Congress
John Conyers
Member of Congress
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