(3) The Board of Governors shall require each firm described in subsection (1) to apply the formula of subsection (2) to its financial statements annually and to maintain a minimum amount of capital in its Subsidy Reserve equal to the cumulative results of that formula.
(4) The Subsidy Reserve shall not be used to satisfy any other capital requirements.
(5) Other than as described in subsection (6) the Subsidy Reserve shall not be diminished through dividends, share buybacks, or otherwise distributed to shareholders or diminished through payments to insiders of the firm.
(6) The Subsidy Reserve may be diminished in connection with a firm's sale of assets, the spinoff of subsidiaries, or other such divestiture in which case a proportion of the Subsidy Reserve will be allocated to the divested property on either a pro rata basis or according to the risk weighting of the divested property as determined by the Board of Governors either by order or regulation.
(7) The Board of Governors may issue such regulations and orders as it considers necessary to implement this subsection.
I know it's unusual to include the text of a bill in an op-ed such as this. But what the above demonstrates is that it does not take 2,300 pages of law to achieve meaningful reform.
My most fervent hope is that the new Congress and the new Secretary of Treasury agree.
Cornelius Hurley is director of the Boston University Center for Finance, Law & Policy and former assistant general counsel at the Board of Governors of the Federal Reserve System.
Without the subsidy of deposit insurance, banks will restructure themselves into healthier, less risky economic entities. Safety and soundness will become a basis of competition, as will risk/reward. Shareholders and executives will bear their fair share of the risk. Some banks will remain very large specialists in transactional banking. Others will become specialized lending companies with deep expertise in their fields. Still others will become investment managers with a range of debt, equity and other funds. We will end up with a much stronger system that does a better job of satisfying its customers. Markets not subject to the distortion of politicized, government mandates are always more efficient.