Skip to main content

It's called 'The Minneapolis Plan' and it's meant to prevent bank bailouts

The Minneapolis Fed pitches a recipe to keep banks from getting 'too big to fail'

Folks in the banking industry know the phrase so well they just use the letters TBTF.

Too Big To Fail.

The top banking exec in Minnesota went to Wall Street Wednesday to tout a plan for preventing banks from getting so big the country would rather bail them out than watch them fail.

This guy knows about TBTF

When the country's biggest banks hit a financial crisis a decade ago, a government bailout was justified by explanations that if the banks went under it would be disastrous for the U.S. economy. So a $700 billion bailout was hatched to rescue banks considered too big to fail.

Neel Kashkari was in the thick of that bailout. He ran the Troubled Assets Relief Program for the Treasury Department in the George W. Bush administration.

Now Kashkari is president of the Federal Reserve Bank of Minneapolis. He told The Economic Club of New York the country can't afford another one of those bailouts and said his "Minneapolis Plan" will get the biggest banks to break themselves up into smaller pieces.

What would the plan do?

Under the Minneapolis Plan big banks – ones worth $250 billion or more – would have to keep more money around to cover unexpected losses.

For banks the Treasury Department says are especially important to the economy, that could be up to 38 percent of their assets. Reuters says that doubles the equity capital those banks have to have now.

Kashkari says banks would not want to do that, so to avoid the requirement they would break themselves up.

In his words: "We believe the threat of these massive increases in capital will provide strong incentives for the largest banks to restructure themselves..." (You can read his speech here or watch it on YouTube.)

The plan would also put new taxes on the biggest "shadow banks," which The Economist explains are investment funds that act like banks but don't have the same regulations. And it would roll back regulations on small banks.

Will it happen?

People who would have said "No" during the Obama administration are instead saying "Who knows?" with Donald Trump poised to move to the White House.

Reuters notes Trump has been a critic of Wall Street and said during the campaign he would get rid of the 2010 law that set up today's banking regulations.

“Everyone is waiting and watching to see what he meant,” former Minnesota Gov. Tim Pawlenty told the New York Times Wednesday.

In the meantime, there's a 60-day comment period on the Minneapolis Plan Kashkari laid out. You can read the whole plan here and comment on it here.

Next Up

raiaing canes brooklyn park crop

After 3-month delay, newest Twin Cities Raising Cane's opens

The restaurant was originally scheduled to open in October.

st anthony armed robbery screengrab

Armed man robs Twin Cities thrift store, flees in carjacked pickup

He pulled out a handgun shortly after chatting with the cashier about his scarf.

red wing 6

Gallery: Pagoda-inspired home on Lake Pepin for sale for $2M

The home has 425 feet of private shoreline on the Mississippi River.

Walz, Flanagan

Walz proposes legalizing marijuana in massive supplemental budget

It's among the provisions in his "Budget to Move Minnesota Forward."

Plow 2 (1)

Photos reveal damage from gunshots to Minneapolis snowplow

A hydraulic line and three tires were damaged in the shooting.

unsplash - school classroom students

Minneapolis schools confirm return to in-person teaching Monday

The school district shifted to online learning almost two weeks ago as rising COVID cases led to staff and bus driver shortages.

Flickr - Superior National Forest Boundary Waters

Mineral leases for proposed Twin Metals mine near Boundary Waters canceled

A review by the DOI found "significant legal deficiencies" with the leases' 2019 renewal.

cats

Reward to find person who left kittens to die in freezing WI cold

The cats were thrown from a vehicle, according to a witness.

metro mobility bus

Charges: Man led police on multi-city pursuit in stolen Metro Mobility bus

The bus had been left unattended with the keys inside when it was stolen.

Bell Ramsey Co. Jan 22 - crop

Charges: Man fatally shot mother of his child during argument

Officers found her on the ground outside the couple's home.

covid

Minnesota's COVID-19 update for Wednesday, January 26

More than 15,000 new cases in today's update.

Related

While the world watched Comey, U.S. House voted to strip these finance rules

The vote could have implications for American consumers.

Update: Now The Limited is closing all its stores across the U.S.

All Twin Cities stores are set to close next week.

Update: TCF Bank says its Monday issues should be fixed

The Plymouth-based bank was experiencing "processing delays" for certain deposits.

TCF Bank tricked customers into expensive overdrafts, federal agency says

The Wayzata-based bank is accused of obscuring overdraft fees and failing to explain they were optional.

A ranking of the most complained-about banks is not topped by Wells Fargo

Researchers say they were surprised to find a smaller, Minnesota-based bank topped their list

Millennials expect to spend more money, they'll just ask mom and dad first

Millennials are making more money and planning to spend more, too. But before they buy that car, they'll ask their parents.

The Tip Jar: How to have a cheap staycation in Minnesota

Don't want to stray too far or spend too much this summer? The Tip Jar has you covered.

The Tip Jar: A beginner's guide to setting up and saving into an IRA

Want to get an IRA for retirement but the prospect is too daunting? Check out this guide.