Huntsman plan would try to prevent banks from growing 'too big to fail'

Republican presidential candidate Jon Huntsman is looking for a permanent end to "too big to fail" financial institutions with a new plan to reform the banking system.

Under the plan, banks would be limited in how large they could grow as a share of the nation's economy, as well as how far they could extend themselves with leverage. In addition, the nation's largest banks would have to pay a special fee to cover the costs of a potential bailout.

Huntsman's campaign will roll out the plan next week, but provided a preview to the American Enterprise Institute Wednesday.

"We need banks that are small and simple enough to fail, not financial public utilities. Hedge funds and private equity funds go out of business all the time when they make big mistakes, to the notice of few, because they are not too big to fail," the campaign stated. "There is no reason why banks cannot live with the same reality."

The former Utah governor has previously criticized the current banking system, in which six banks have assets worth 66 percent of the nation's gross domestic product. Simply by nature of their massive size, he argued that they enjoy an implicit government guarantee, in that if they were to fail, they are so integral to the financial system that the government would have no choice but to bail them out.

GOP critics of the Dodd-Frank financial reform law have argued that it failed to address the "too big to fail" situation. But backers of the law contend it does address the situation by allowing regulators to declare financial institutions as "systemically important," which then subjects them to greater regulatory oversight.

Under Huntsman's plan, banks that exceed a certain size would have to pay a fee which would cover the costs of potential bailouts and would steadily increase if banks do not slim themselves down. That fee would remove the benefits of reaching "too big to fail" status, and encourage banks to shrink themselves, according to the campaign. In addition, the revenue derived from that fee would go toward lowering taxes for corporations outside the financial sector.

In addition, Huntsman's plan will call for stronger capital requirements on banks, and reworking the insurance premium system run by the Federal Deposit Insurance Corporation so it better reflects the varying risks held by different banks.

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