Preventing taxpayer bailouts

Watchdog the watchdogs | Fire drills for banks | A “Living Will” for banks | More transparency for risky investments

Back to Wall Street Reform Guide

Many of the largest banks in the country are so big that they have influence over the finances of millions of Americans and businesses. So if one of them collapses, like many banks did in 1929 and again in 2008, it can mean that millions of people lose their money and the economy goes into a tailspin. Following the 1929 Wall Street crash, laws were enacted to help ensure that banks to operate prudently and avoid risky practices. Over the past twenty-five years, those laws were gradually scaled back. Subsequently, many large banks engaged in increasingly high-risk practices – many of which are attributed to the 2008 financial crisis and resulting bailout.

There are two sides to whether or not the bailout was the right thing to do. But there is little question that the more important task is to reinstate and modernize many of the Depression-era rules that kept the banking industry stable – and to ensure the banks, not the public are on the hook in the event of a future collapse.

The Wall Street Reform law includes a number of provisions, in addition to the Volcker rule, designed to ensure that both the banking industry and the government work to keep the banking industry stable. Here are some of the most important provisions:

Watchdog the watchdogs

Problem: Credit rating companies, like Standard and Poor’s, are supposed to speak up when a major bank makes so many risky loans that they put their finances at risk. Unfortunately, the largest credit rating agencies fell down on the job, looking the other way when most Wall Street banks made risky investment decisions. By the time the problem was discovered, the economy collapsed.

Solution: Government watchdogs are now empowered to closely monitor credit rating companies and ensure they perform their duties.  

Learn more:  From the agency largely responsible for regulating credit rating agencies: the U.S. Securities and Exchange Commission

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Fire drills for banks

Problem: With credit rating companies looking the other way, many bank executives ignored obvious signs that their company was at risk – until it was too late.

Solution: New proposed rules will require banks to do periodic “stress tests” of their finances. It works much like those fire drills at school. Banks will be required to run their loans, securities portfolios, and funding operations through various economic scnarios, including periods of rising unemployment and economic decline. They will report areas of weaknesses and their plans to fix them to government watchdogs, who will ensure banks follow through. 

Learn more: Washington Post, 11/22/11, Fed Plans Second Stress Test for Big Banks

From the agencies primarily responsible for stress tests: the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC)

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A “Living Will” for big banks

Problem: When Lehman Brothers and other banks collapsed in 2008, these banks were so huge and complex, it was impossible for the public to quickly figure out who would be affected, and how to best to control the damage so people didn’t lose their money. That made speedy action impossible at a time when it was essential.

Solution: Now, banks with $50 billion or more in assets have to create a “living will” so that if that bank collapses, the public and government officials have inside information about the bank, and can more easily figure out how minimize damage to consumers.

Learn more: New York Times, 9/13/11, Regulators Aim to End Too Big to Fail

From the Federal Reserve, the agency responsible for the living will rule.

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More transparency for the most risky investment decisions

Problem: Back in the olden days, banks used to make money through the interest on loans to businesses and consumers, which is a relatively stable activity. In recent years, however, many banks shifted to making profit by betting on high yielding but risky and complex trading schemes, such as derivatives. Unfortunately, there were few rules governing these schemes. Many banks bet more money than they could pay back, and bet them on financially unsound schemes. This was a key reason why so many banks collapsed in 2008.

Solution: New rules will require these schemes to operate openly to prevent fraud, ensure banks have enough cash on hand in case their bet fails, and ensure that banks only bet on schemes that have a solid rationale behind them.

Learn more:

Primer on derivatives from the New York Times

From the two federal agencies responsible for regulating derivatives: U.S. Securities and Exchange Commission and U.S. Commodities Futures Trading Commission

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Issue updates

News Release | OSPIRG Foundation | Consumer Protection

35th annual Trouble in Toyland report uncovers mislabeled and dangerous toys

PORTLAND --  OSPIRG Foundation's Trouble in Toyland report has helped identify dangerous toys for 35 years. But 2020 is unique, and as Americans have worked, learned and played from home to protect themselves from COVID-19, children could be more susceptible to certain toy-related hazards. 

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FTC settles first case against VoIP provider for allowing illegal robocalls

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News Release | OSPIRG | COVID-19, Consumer Protection, Higher Ed

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News Release | OSPIRG Foundation | Consumer Protection

35th annual Trouble in Toyland report uncovers mislabeled and dangerous toys

PORTLAND --  OSPIRG Foundation's Trouble in Toyland report has helped identify dangerous toys for 35 years. But 2020 is unique, and as Americans have worked, learned and played from home to protect themselves from COVID-19, children could be more susceptible to certain toy-related hazards. 

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News Release | US PIRG Education Fund | Consumer Protection

FTC settles first case against VoIP provider for allowing illegal robocalls

This FTC settlement must be a wake-up call to phone service providers so they do more to protect consumers. If not, the FTC must be vigilant in going after companies that enable the immoral practice of preying on consumers. And the FCC should require providers to block spoofed calls that we all know are scams.

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News Release | OSPIRG | COVID-19, Consumer Protection, Higher Ed

Coalition calls for immediate action to protect Oregon’s most financially vulnerable amid pandemic

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News Release | U.S. PIRG Education Fund | Consumer Protection

Americans need stronger consumer protections during COVID-19 crisis

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News Release | OSPIRG Foundation | Consumer Tips, COVID-19, Consumer Protection

18 Oregon legislators demand Amazon, other online marketplaces end coronavirus price gouging

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Report | OSPIRG Foundation | Consumer Tips, Consumer Protection

Price gouging on Amazon during the Coronavirus outbreak

Empty store shelves and out of stock signs are becoming more common in America as the Coronavirus reaches the nation’s shores. While many regions have yet to declare a state of emergency, a new analysis by U.S. PIRG Education Fund revealed the 30-day average price of surgical masks and hand sanitizer 18.5 percent higher than the three month average. High prices during February were at times more than double the average cost of the same product over a 90-day time period.

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Report | U.S. PIRG Education Fund | Consumer Protection

Trouble in Toyland 2017

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Report | U.S. PIRG Education Fund | Consumer Protection

Lead In Fidget Spinners

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Report | OSPIRG Foundation | Consumer Protection

Older Consumers in the Financial Marketplace

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Report | OSPIRG Foundation | Consumer Protection

Protecting Those Who Serve

The men and women who serve in America’s military are also active consumers in America’s financial marketplace, where tricks and traps can cause harm to their finances and their lives. An analysis of more than 44,000 complaints submitted by active duty servicemembers and military veterans to the Consumer Financial Protection Bureau (CFPB) and contained in its Consumer Complaint Database finds that mistreatment of servicemembers by financial companies is widespread.

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Blog Post | Consumer Protection

ID Theft & Privacy Checklists | Mike Litt

Today, we're releasing our revamped Identity Theft and Online Privacy resources.

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Consumer Tips and FAQ about the Equifax Breach | Mike Litt

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Blog Post | Public Health, Consumer Protection

#KickTheCan: BPA still found in many grocery stores’ canned foods | Dev Gowda

We’re all told to watch out for BPA in drinking bottles and baby products. But how about BPA in the cans that contain our food? A recent study by Center for Environmental Health (CEH) reveals that the toxic chemical BPA is readily found in canned foods. BPAs are often used in the liners of canned food to keep the aluminum from interacting with the food.

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News Release | OSPIRG Foundation

PORTLAND --  OSPIRG Foundation's Trouble in Toyland report has helped identify dangerous toys for 35 years. But 2020 is unique, and as Americans have worked, learned and played from home to protect themselves from COVID-19, children could be more susceptible to certain toy-related hazards. 

Blog Post

Here’s a guide to your rights depending on how you pay

News Release | US PIRG Education Fund

This FTC settlement must be a wake-up call to phone service providers so they do more to protect consumers. If not, the FTC must be vigilant in going after companies that enable the immoral practice of preying on consumers. And the FCC should require providers to block spoofed calls that we all know are scams.

Blog Post

Being proactive and demanding can help keep you and your family safe

News Release | OSPIRG

The Stop the Debt Trap Alliance, a coalition of organizations representing diverse constituents across Oregon delivered a letter to Gov. Kate Brown and Oregon legislative leadership urging them to take action to protect Oregonians from the economic impacts of COVID-19, especially those who are already economically vulnerable

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Priority Action

Ask the Federal Reserve to implement a strong Volcker rule and end Wall Street's risky bets.

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