How a Much-Heralded Bank Reform Proposal Could Actually Blow Up the American Economy

By Lynn Stuart Parramore

May 2, 2013  |  It sounds like a fabulous idea: a bipartisan bill to end big commercial bank bailouts. Though it probably won’t pass, there are certainly many good things in the freshly minted Terminating Bailouts for Taxpayer Fairness Act, co-sponsored by Sherrod Brown (OH-D) and David Vitter (LA-R).

Greater transparency? Like it. Juggernauts like JPMorgan Chase with over $500 billion in assets forced to hold more capital to protect against losses? This is a terrific proposal, the one big idea that would at a stroke make bank bailouts a lot less likely. No more taxpayer funds to bail them out? Three cheers, even if one doubts that federal authorities will ever dare to let another behemoth go down after their ghastly experience with Lehman.

But there’s more to this bailout bill than meets the eye – much more than many progressive cheerleaders realize. Some things in the bill could hurt us, and even increase overall risk in the financial system.