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The Message of Brown-Vitter

Tickers in this article: BAC C GS JPM MS WFC

NEW YORK (TheStreet) -- Strange as it may be for you to read this, in a publication called TheStreet, the rest of the country doesn't like Wall Street.

We think you're crooks, that the game is rigged. Skepticism turned to cynicism after the 2008 financial crisis, when "too big to fail" banks were filled with bad assets, then propped up with government help to run back into the casino.

Since then, the big banks have been struggling to regain traction, while smaller banks have powered ahead. Wells Fargo has done well, but JP Morgan Chase still trades at a discount to its book value, while Bank of America and Citigroup trade at huge discounts to book. I wrote about this a few weeks ago.


Goldman Sachs and Morgan Stanley were also made bank holding companies in the wake of the 2008 crisis. Together with the other four they make up a "big six" that are called "Wall Street" banks even though Bank of America is based in Charlotte and Wells Fargo in San Francisco. (For reference, here is a government list of the 50 biggest bank holding companies by assets.)

The Terminating Bailouts for Taxpayer Fairness Act, summarized by co-sponsor Sherrod Brown, Democrat of Ohio, would raise capital requirements on the six to protect against their failure. The other co-sponsor is Louisiana Republican David Vitter.


A draft of the bill, posted on Scribd by QuartzNews, shows it would impose a 15% capital requirement on these banks starting five years after the bill's publication. The expectation is that the banks would break up into smaller institutions to avoid the requirement. "I don't want you to talk Mr. Bond. I want you to die," as was said in the film Goldfinger, available on YouTube.

Wall Street is "hair on fire" over the proposal, with Standard & Poor's warning it could force it to downgrade the affected banks. American Banker editorialized , in effect, to "give Dodd-Frank a chance."

That argument doubtless caused some coffee spills over at the Independent Community Bankers Association , which supports the bill, because big bank opposition is the reason two-thirds of the Dodd-Frank rules have yet to be written.

For investors, however, Brown-Vitter might unlock substantial value. All the banks listed by Forbes as America's "best banks" trade at a substantial premium to book.