Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

Emotions ran so high in the spring of 2010 that it took a coalition of Treasury, centrist Democrats and business lobbyists to block a last-minute effort to ban any banks enjoying an FDIC guarantee from engaging in derivatives trading of any kind. For the biggest banks this would have been truly costly. The resulting compromise “pushed out” only 10 percent of the least dangerous derivatives. Similarly, a last-minute proposal to address “too big to fail” by putting a cap on the total size of bank balance sheets was blocked in the banking committee by Chris Dodd and other “moderate” allies. One vital late amendment that did make it into the final law was the Collins Amendment of May 2010.50 Drafted behind the scenes by the FDIC, it demanded that whatever capital standards the Fed and the regulators set for the biggest banks should at least match the level required of the smaller FDIC-regulated banks. Bair wanted to roll back the favoritism shown to the big banks under the Basel II regime. She also wanted to ensure that capital standards applied to holding companies as well as commercial banking subsidiaries. The Fed and the Treasury resisted. They insisted that setting capital requirements was their regulatory prerogative. The banks screamed that the demanding new capital standards would force them to cut credit by $1.5 trillion. It came down to a struggle in the House and Senate reconciliation process, in which Senator Susan Collins and Bair prevailed with the backing of Dodd.

Blargh watered down volcker rule