Who wants to break up big banks? The Senate, apparently

Yes, the measure was purely symbolic and Congress isn't exactly known for following through on its promises, but the Senate's unanimous vote late Friday night to break up big banks has left some financial analysts wondering whether Washington might actually follow through.

(AP Photo/Richard Drew) (AP Photo/Richard Drew)

During its marathon "vote-a-rama," the Senate took up a budget amendment from Sen. David Vitter (R-La.) to "end 'Too Big to Fail' subsidies or funding advantages for Wall Street mega-banks (over $500 billion total assets)." The non-binding amendment passed unanimously, 99-0. The $500 billion threshold would encompass the six largest U.S. banks.

The Guggenheim Washington Research Group believes that the unanimous vote on the Vitter measure is a sign that there's the political will to push it through. "The fact that both measures easily passed suggests there could be support for them as amendments to other bills," the firm writes, referring to both the Vitter amendment and a separate amendment from Sen. Tim Johnson (D-S.D.) that restricts the use of Fannie Mae and Freddie Mac fees to fund other parts of the government.

Guggenheim points out that the Vitter amendment doesn't prohibit big banks outright but instead suggests that regulators would be allowed to penalize them, giving them a major incentive to break up:

The break-up-the-bank amendment is designed to eliminate any funding advantage or subsidy that the mega banks enjoy...The government would not directly tax the banks to take away this advantage. Rather it would be up to the regulators to find a response. We would expect these to include higher SIFI surcharges and unsecured debt requirements. We believe the ultimate goal is to convince the six biggest banks that they would be better off breaking themselves up.

And it may not be long before this symbolic measure turns into actual legislation. Vitter has partnered with Sen. Sherrod Brown (D-Ohio) to develop bipartisan legislation to break up big banks. And their campaign has gained popular traction on both right and left: Dallas Fed President Richard Fisher tried to rally conservative activists at CPAC behind the issue this month, and it's long been a pet issue for the Occupy crowd.

(h/t Ben White)

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Neil Irwin · March 25, 2013

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