Fair Game: Two Senators Try to Slam the Door on Bank Bailouts

The legislation, called the Terminating Bailouts for Taxpayer Fairness Act, emerged last Wednesday; its co-sponsors are Sherrod Brown, an Ohio Democrat, and David Vitter, a Louisiana Republican. It is a smart, simple and tough piece of work that would protect taxpayers from costly rescues in the future.

This means that the bill will come under fierce attack from the big banks that almost wrecked our economy and stand to lose the most if it becomes law.

For starters, the bill would create an entirely new, transparent and ungameable set of capital rules for the nation’s banks — in other words, a meaningful rainy-day fund. Enormous institutions, like JPMorgan Chase and Citibank, would have to hold common stockholder equity of at least 15 percent of their consolidated assets to protect against large losses. That’s almost double the 8 percent of risk-weighted assets required under the capital rules established by Basel III, the latest version of the byzantine international system created by regulators and central bankers.

This change, by itself, would eliminate a raft of problems posed by the risk-weighted Basel approach. Under those rules, banks must hold lesser or greater amounts of capital against assets, depending on the supposed risks they pose. For example, holdings of United States government securities are considered low-risk and require no capital to be held against them. Securities or loans that are riskier require more of a buffer against loss.

There are many problems with this arrangement. First, the risk assessments on various types of assets rely heavily on ratings agency grades. In the housing boom, toxic mortgage securities carrying triple-A ratings were considered low-risk, too. As such, they didn’t require hefty capital set-asides.

We all know how disastrous that was. So chalk up this plus for Brown-Vitter: Eliminating risk-weights as part of a capital assessment means less reliance on unreliable ratings.

Risk-weighted asset calculations also give bankers a lot of freedom to understate the perils in their institutions’ holdings.

The bill prevents another type of fudging by requiring off-balance-sheet assets and liabilities and derivatives positions to be included in a bank’s consolidated assets. In addition, the capital cushion that a bank would hold under the bill is liquid and can absorb losses easily. This capital measure would be more transparent than the current system and could not be manipulated.

In a truly courageous move, Brown-Vitter would require United States financial regulators to abandon Basel III. An earlier version of Basel did nothing to prevent the financial crisis and encouraged banks to binge on leverage.

Taxpayers would not be the only beneficiaries in the Brown-Vitter bill. Community banks, which weren’t responsible for bringing the nation’s economy to the brink, would be operating on a more level playing field with the jumbo banks. These large institutions have lower financing costs than community banks because the market understands that regulators will never let them fail.

“This bill will inject more market discipline on the financial services industry,” Mr. Brown said in an interview on Thursday. “The megabanks have a choice to make: they can increase their capital or bring down their size.”

Brown-Vitter has other attributes as well. It would bar bank regulators from giving nondepository institutions access to Federal Reserve lending programs. And it would make it harder for bank holding companies to move assets or liabilities from nonbanking affiliates, like derivatives bets held at a brokerage unit, to the protective umbrella of the parent company that might be rescued by taxpayers in a financial disaster.

Thomas M. Hoenig, the vice chairman of the Federal Deposit Insurance Corporation, supports the bill. “It’s finally taking the discussion in the right direction toward improving the stability of banks and the financial system more broadly,” Mr. Hoenig said in an interview on Friday. Brown-Vitter would also put the United States in a leadership position on financial soundness, he added, which other countries could emulate.

Your Money: How Senators and Representatives Can Help Constituents

Blame whomever you want for this. But don’t underestimate how much help you can sometimes get with your own financial problems from the people you put in the Senate or the House of Representatives.

Every one of them has employees who do what is known as constituent service, helping people with thorny problems that may involve a federal agency. Most often, they are trying to sort out Social Security problems, federal disability filings, Internal Revenue Service headaches, veterans’ benefits and mortgage issues. Immigration requests involving small-business employees and newly married couples are common, too.

These staff members often refer to their efforts on your behalf as casework and treat it as a social worker would, keeping files on each person who seeks help. “When we hire new workers, I tell them that the only difference between customer service and constituent service is the way you spell it,” said Mike Cantwell, the district director for Representative Steve Chabot, Republican of Ohio.

So far this year, Representative Chabot’s staff has handled nearly 700 requests for help. About 270 concerned veterans’ issues, including benefits, and another 170 had to do with Medicare or Social Security. Many offices have specialists who work in one or two areas and have longstanding relationships with officials at federal agencies who can help.

While all of this may resemble retail customer service, remember that it is also retail politics. When trying to help you, Republicans and Democrats both say that they don’t know or care whom you voted for, but there will always be legislators on either side of the aisle who make constituent service less of a priority than others.

“Some members have safe seats and do not have to worry about going to great pains to thoroughly serve every constituent who contacts them,” according to “Keeping It Local,” a guide published by the Congressional Management Foundation, a nonprofit organization focused on office operations and citizen involvement.

It’s worth a shot, however. What follows is a rundown of some of the many roles that these caseworkers take on, including surprising advice on how early in your problem-solving process you should contact them.

SWITCHBOARD OPERATOR Sometimes people call or write to their representatives because they don’t know who else to call. “A woman called who thought that a member of Congress could give her free birth control,” said Ryan Stenger, chief of staff for Representative Bob Gibbs, Republican of Ohio. “I don’t think people understand what Congress does sometimes.”

Often, callers’ issues are ones that state legislators or local officials must handle. Still, that’s an easy referral to make: many House and Senate staff members know whom to contact elsewhere, and many have even worked in other parts of government.

So don’t worry too much about being a pest. In fact, it’s better to call too soon than too late. “Hundreds if not more times, we’ve told them, ‘If you could have only contacted us earlier,’ ” Mr. Cantwell said. “A lot of this stuff has things that have to be in by a certain date, or there are so many months to appeal this or do that.”

Not long ago, Representative Chabot’s staff heard from a woman who had received permission in 2000 from the Equal Employment Opportunity Commission to file a lawsuit. She had only a limited time in which to sue, and she did not meet the deadline. Years later, she wanted the congressman to somehow turn back the clock.

The bottom line is this: If you’re dealing with a federal agency, it’s a matter of real financial importance and there is even a small chance that you’re not understanding the process or the agency’s decision, ask your elected representative for help.

MEDIATOR In a recent article in the Sunday Review section of The New York Times — one that gave me the idea for this column — Fred A. Bernstein, a journalist and lawyer, mentioned a friend who got a mortgage modification. Her senator made an inquiry with a regulator after her own extensive efforts at persuading her lender to adjust her loan had failed.

Caseworkers are wary of promising too much on this front. They are not supposed to talk to your lender; they can only speak to its regulator, often the comptroller of the currency. And they will usually do so only if they believe a legitimate question has gone unanswered. “We’re not trying to twist arms,” Mr. Cantwell said. “The fact is, we’re not allowed to do that.”

Mr. Stenger added that the role of the staff in Representative Gibbs’s office was often to pass something along, beginning with an innocent inquiry. “You need to be careful in casework to give the benefit of the doubt to both sides,” he said. “What we do is make people communicate with whom they are supposed to be communicating with quicker.”

RED-TAPE CUTTER This is a close cousin to the mediator role, and the fact is that House and Senate staff members have a better set of scissors than you do. Gene Crockett, a constituent liaison for Representative Tim Ryan, Democrat of Ohio, has wielded the shears a number of times.

A couple of years ago, he heard from a constituent who relied entirely on his Social Security check for his living expenses. The check had stopped coming, and he couldn’t figure out why. Neither could Mr. Crockett, at first. “I asked him if he had a first wife or something, but that wasn’t it,” he recalled.

He made a few calls and got the Internal Revenue Service involved. Eventually, he discovered that a clerk had switched two digits when recording somebody else’s Social Security number, causing the man to be mistaken for a woman in Illinois who owed the I.R.S. a lot of money. The man probably would have starved before figuring that out on his own.

Another time, Mr. Crockett helped a befuddled nun whose Medicare drug plan kept switching, no matter how many times she switched it back to the one she wanted. He soon discovered that there was a woman in Florida with the same name who was born on the same day. “Every time the woman I was helping switched it, the lady in Florida would get mad and switch it right back,” he said. “How would they have ever found that out?”

He is quick to note, however, that he is not in the business of changing inconvenient facts, like the ones that govern qualification for disability benefits from the Social Security Administration. “You have to have worked five out of the last 10 years,” he said. “There are people who haven’t worked, and they get administratively denied. And then they want to argue with you, and you can’t change the rules.”

EXPEDITER But every so often, when things are truly dire, a nudge from a member of Congress can make the rules work as they ought to more quickly. This year, Amanda Binion, a 22-year-old nursing student in Niles, Ohio, came down with a life-threatening form of pancreatitis just after her father lost his job and her health insurance was about to disappear.

Qualifying for Medicaid was the only way to pay for the treatment she needed, but state rules made her ineligible unless the Social Security Administration declared her disabled.

When it became clear how long that might take under normal circumstances, Ms. Binion wrote an e-mail to Representative Ryan’s office and crossed her fingers. She received a reply the next day, and within about six weeks she was on the Medicaid rolls.

“We were desperate,” she said. “Without their help, I would have been waiting for months.”

This article has been revised to reflect the following correction:

Correction: October 19, 2012

An earlier version of this article misstated the amount of time the Equal Employment Opportunity Commission gives people to file a discrimination lawsuit. The deadline is generally 90 days after receiving permission to file, not “a couple of years.”

DealBook: 2 Senators Call for Greater Bank Capital Requirements

The debate over Wall Street regulation has tended to divide politicians along party lines. But on one issue at least, two senators, a Democrat and a Republican, see eye to eye.

In a new letter to be sent to regulators on Wednesday, Senator Sherrod Brown, Democrat of Ohio, and Senator David Vitter, Republican of Louisiana, argue for tougher rules on bank capital reserves, the cushion that financial institutions must keep against losses. The current proposal does not go far enough, they say.

“With financial regulators considering a host of new domestic and international capital requirements, we write today to urge your agencies to simplify and enhance the capital rules that will apply to U.S. banks,” reads the letter from the two lawmakers.

Stricter requirements would “properly align incentives for megabanks by lessening government support for the financial sector, and reassure financial markets that the U.S. financial system is healthy,” the lawmakers write.

The two men, who sit on the Senate Banking Committee, addressed the letter to three prominent regulators: Ben S. Bernanke, the Federal Reserve chairman; Martin J. Gruenberg, acting chairman of the Federal Deposit Insurance Corporation; and Thomas J. Curry, head of the Office of the Comptroller of the Currency.

Regulators have been grappling with the issue of bank capital since the financial crisis led the government to rescue the largest banks in a taxpayer bailout. The financial industry has pushed back against calls to increase capital buffers, arguing that more equity financing would be burdensome for their business.

Mr. Brown and Mr. Vitter took up the issue in August in a letter to Mr. Bernanke, responding to the Fed’s decision to support capital rules drafted by an international group of officials known as the Basel Committee on Banking Supervision.

Those rules, called Basel III, would require banks to hold the equivalent of at least 7 percent of their assets in so-called Tier 1 common capital. Banks considered “systemically important” — those whose failure could threaten the financial system – would be required to hold capital above that amount.

Mr. Brown and Mr. Vitter write in their letter on Wednesday that these standards may not be tough enough.

They also take issue with the so-called risk weights in the Basel rules, which allow banks to hold less capital against assets deemed less risky, calling that system flawed.

“Accounting gimmicks may help institutions appear to have higher regulatory capital levels and avoid raising more equity, but when risk weights are gamed, the markets lose faith in banks’ balance sheets,” they write.

“In this case,” they say, “simpler really is better.”

The complexity of the current proposal also puts an unnecessary burden on community banks, the lawmakers say.

Mr. Brown and Mr. Vitter often find themselves on opposite sides. But Mr. Brown said in an interview that the idea of an alliance occurred to him during a hearing in July, when he admired the questions Mr. Vitter was putting to Mr. Bernanke.

The pair began discussions that led to the letter in August.

“I’m sure we were both shocked at some point to notice common threads in our thinking,” Mr. Vitter said, with a laugh. “We explored those over time.”

He said he and Mr. Brown were like an “odd couple” in the Senate on this issue.

Mr. Brown added, “I think both conservatives and progressives believe the government shouldn’t be subsidizing Wall Street banks.”

A draft of the full letter is below.

Letter from Senators Brown and Vitter