GAO: Anti-bank bailout rules not finished

Federal financial regulators have not fully finalized measures to make sure that major banks cannot depend on the federal government to bail them out in a crisis, according to the Government Accountability Office (GAO).

A report from the GAO, which acts as Congress’s investigative arm, discovered that measures under the Dodd-Frank Act to limit future bailouts “are not yet fully implemented.”

Lawmakers in the Senate say the report underscores that “too big to fail” banks have an implicit guarantee that the government will bail them out in the case of a crisis.

According to the GAO report, the Federal Reserve has not completed procedures changing the way it grants emergency funding to banks during a crisis. It has also not set time frames for finishing the new procedures. 

{mosads}Sens. Sherrod Brown (D-Ohio) and David Vitter (R-La.), who asked for the GAO to conduct the report, said it supported their legislation to rein in the largest Wall Street banks, the Terminating Bailouts for Taxpayer Fairness Act.

The legislation would require major banks to maintain robust capital reserves and limit their government safety net. It would set especially stringent limits for the six largest financial institutions: Wells Fargo, Citibank, Bank of America, JPMorgan Chase, Goldman Sachs and Morgan Stanley.

“Eliminating the megabanks’ federal handouts – and addressing the problem of ‘too big to fail’ financial institutions – is a simple matter of common sense,” Vitter said in a statement on Thursday. “This report highlights that the megabanks have been growing at an unacceptable $2 trillion pace since the financial meltdown – largely on the backs of U.S. taxpayers.”

Brown added that the legislation is needed to “ensure that these types of bailouts will not happen in the future by imposing sensible capital requirements.”

A second part of the GAO study will look at the funding advantages major banks receive. The report will be released in 2014.