Fixing Too Big to Fail: View from the Pews

As leaders of church and national minority business organizations, few of our congregants or constituents understand or care about the Volcker Rule. Most, however, are concerned about the growing gap in compensation between the working poor and that of the CEOs of major banks, such as Citigroup and JPMorgan Chase.

What our congregants and constituents desire is largely what all of Main Street wants, competitive banking that is sufficiently regulated to avoid the failures and predatory lending of once powerful institutions, such as Countrywide, Wachovia and World Savings.

Given the depression-level unemployment of Blacks and Latinos (real unemployment levels of 30 percent), more must be done. Every bailed out "too-big-to-fail" bank should be required to set aside at least two percent of Tarp funds received for inner city neighborhood stabilization and revitalization projects.

The recent risky bets by JPMorgan cannot, in our opinion, be easily prevented by any specific rule. This includes a rule created with the best of intentions, the Volcker Rule. Although we support the Volcker Rule, any rule that goes beyond the length of the Ten Commandments (less than 400 words) is unlikely to withstand the test of time or secure the fervent support of the 99 percent.

We appreciate Paul Volcker's efforts. But we must take into account that JPMorgan's losses were made by a CEO who President Obama recently stated "is one of the smartest bankers we got…"

The following suggestions could at least eliminate the "too big" portion of the problem:

First, gradually limit FDIC-insured deposits to $200 billion per institution. Restraining the four largest financial institutions, JPMorgan, Bank of America, Wells Fargo and Citigroup, would expand deposit base of other banks. And, by creating more oxygen, this could allow the expansion of minority-owned banks that have served the 99 percent.

Second, wise emperors always had prime ministers. We urge that every chairman be separate from the CEO position so there is at least one high-level check against unnecessary risk. To further minimize risk, we urge that fully independent advocates for the 99 percent, such as Sheila Bair and Phil Angelides, be appointed to the board of directors of large banks.

Third, it's a problem when compensation for a top executive at a major bank tends to be around 400 times the median individual income. This disparity is compounded by the pressures to take big risks in order to meet the expectations that come with the excessive compensation. We would urge that no executive or manager at any financial institution receive compensation of over $2 million a year, or five times President Obama's annual salary. Any additional compensation should not vest for five years and should be subject to clawbacks.

Further, much as Mitt Romney tithes more than 10 percent of his earnings to his church, 10% of this excessive compensation should be tithed to the "church of the poor" through additional CRA commitments.

We urge the federal regulators to consult with Mr. Volcker to determine if the problem of "too-big-to-fail" banks could be solved by simple and clearly enforceable rules that can also expand the opportunities for tens of billions of dollars in strategic inner city investments.

If we fail to develop a comprehensive and simple solution, it is likely we will have a 400-page Volcker Rule that no one believes will make any difference. This could increase the cost of enforcement by 50 percent while reducing the effectiveness of enforcement by a similar percentage. Most important, if we fail, we will have lost the faith of the 99 percent who have been harmed by numerous banker-led risks.

J. Alfred Smith, Sr. is the senior pastor emeritus of Allen Temple Church in Oakland, one of California’s leading social justice Black churches. Len Canty is the chairman for the Black Economic Council.