WASHINGTON -- Sen. Sherrod Brown (D-Ohio) said Thursday that President Barack Obama and the U.S. Treasury Department were "wrong" to claim that the 2010 Dodd-Frank financial reform law ended the too-big-to-fail problem and the threat of future bank bailouts.
"They're wrong," Brown said during an interview on HuffPost Live, when asked about previous comments from Obama and Treasury officials that Dodd-Frank had solved too-big-to-fail.
WATCH Brown's comments in the video above.
Obama declared bank bailouts dead in July 2010 when he signed Dodd-Frank into law and later reiterated the theme during his 2012 reelection campaign. Treasury officials repeatedly stated after the bill's passage that the legislation empowered regulators so they wouldn't be pushed to save major financial institutions with tax dollars in the future.
"The American people will never again be asked to foot the bill for Wall Street's mistakes," Obama said in July 2010. "There will be no more tax-funded bailouts -- period."
"They need to think that," Brown told HuffPost, referring to Obama and Treasury. "They want to think that because they want that chapter closed and not reopened. They don't really want to deal with those issues. But I do think they're wrong. I think the Treasury Department has over the years -- as many of the agencies, like the SEC [Securities and Exchange Commission] and OCC [Office of the Comptroller of the Currency] -- been too close to Wall Street. I think there's no question about that."
Brown said that extensive lobbying at regulatory agencies by the six largest banks has prevented Dodd-Frank from being implemented effectively and argued that most investors still believe big banks would be salvaged by the government in a crisis.
"It really doesn't matter what Treasury thinks. It doesn't matter what I think ... What matters is what the capital markets think. And the capital markets will loan money to Wall Street, to these Wall Street banks at lower interest rates than they loan to the Peoples Bank in Coldwater, Ohio, or loan to the Huntington Bank in Columbus, Ohio ... Why is that? The people investing money understand that there is almost no risk in lending to the big banks, because if they fail, then they think taxpayers will bail them out."
As further proof that too-big-to-fail remains in full effect, Brown pointed to Attorney General Eric Holder's comment that he resists prosecuting officials from big banks out of concern that such cases could damage financial markets.
On Wednesday, Brown held a press conference to unveil bipartisan legislation, co-sponsored by Sen. David Vitter (R-La.), that would force the six largest U.S. banks to hold significantly higher levels of capital than they currently do on big banks. That bill would require banks with at least $400 billion in assets to carry at least 15 percent of those assets in hard equity capital.
That percentage is five times the threshold required by Basel III international banking standards. High capital requirements limit the amount of money that banks can borrow to finance their operations. This capital makes it less likely that a bank will fail if risky bets backfire and limits the losses to creditors if the bank does fail. The high standards are designed to put banks in a difficult position and encourage them to break up into smaller firms, limiting their power in the marketplace and on Capitol Hill.
Separately, Brown is also pushing further legislation that would require big banks to break up into smaller institutions.
The bill would cap the total non-deposit liabilities of any bank at 2 percent of the total U.S. economy. If the plan were implemented, JPMorgan Chase, Wells Fargo, Citigroup, Bank of America, Morgan Stanley and Goldman Sachs would all have to be broken up into two or three smaller banks.
The idea has long had the support of progressives who focus on limiting the power of large corporations, but it also has garnered support from self-styled free-market conservatives like Vitter, who want to eliminate government benefits enjoyed by select firms.
Brown has introduced similar legislation in prior sessions of Congress. He also offered the measure as an amendment to Dodd-Frank, but the amendment failed after garnering just 33 votes. The senator told HuffPost that he's secured at least "a dozen" additional votes for the proposal in the ensuing years.
CLARIFICATION: A previous version of this article stated that Brown introduced liability cap legislation on Wednesday. He introduced stronger capital requirements.
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