The Fine Line between Commerce and Bailouts

Senator Sherrod Brown, Democrat of Ohio, and Senator David Vitter, Republican of Louisiana, wrote a letter to Federal Reserve chairman Ben S. Bernanke asking him to implement rules that would require banks take on a level of equity funding that allows banks to better absorb downturns in the future while mitigating the need for any future bailouts from the U.S. government.

Put the words “bailouts” and “banks” together and you may as well start a fire; it’s that combustible to most Americans, but as a matter of commerce, we shouldn’t rule out bailouts completely.

If banks are part of the credit infrastructure, and the exchange of loanable funds is necessary to finance commercial activity, Congress as regulator of commerce should step in to ensure the infrastructure that provides access to credit is maintained.

Congressional action should be of last resort, however. For this reason, Mr. Brown and Mr. Vitter’s argument that banks first increase the level of equity funding versus the amount of leverage they have is a good idea. It puts the onus first on the banks to maintain their own viability.

Should Americans expect to see the concept of banks being too big to fail completely evaporate? I don’t think so.

About Alton Drew

Alton Drew brings a straight forward and insightful brand of political market intelligence. Alton Drew graduated from the Florida State University with a Bachelor of Science in economics and political science (1984); a Master of Public Administration (1993); and a Juris Doctor (1999). You can also follow Alton Drew on Twitter @altondrew.
This entry was posted in banks, capital, commerce, Congress and tagged , , , , , . Bookmark the permalink.

One Response to The Fine Line between Commerce and Bailouts

  1. Ken Ciszewski says:

    It sounds to me like what is being discussed here might be called “sensible banking practices.” Heaven forbid we should expect banks to follow those. After all, business should always be allowed to do whatever it wants, and if what it does crashes the world economy, well, that’s tough!

    Please pardon the cynicism and sarcasm.

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