In a conference call with reporters, Sens. Sherrod Brown (D-OH) and Ted Kaufman (D-DE) introduced a bill, The Safe Banking Act of 2010, which would mandate hard leverage and size caps on financial institutions and force the breakup of many of the largest mega-banks. The duo planned to introduce their legislation as an amendment to the financial reform bill expected next week.

The bill would place a cap on any financial institution, limiting their total assets to 3% of GDP (that would lower to 2% for banks, as opposed to 3% for non-bank institutions). Currently, the 6 largest banks have holdings that equal 63% of GDP. The Safe Banking Act would also impose a 10% cap on any bank holding company’s share of insured deposits. Bank holding companies and “selected nonbank financial institutions” would have a leverage limit of 6%, meaning that they would not be able to lend out more than around sixteen dollars for every dollar of capital in house.

In his opening statement, Brown said “If we’re going to prevent big banks from putting our entire economy at risk, we need to place sensible size limits on our nation’s behemoth banks. We need to ensure that if banks gamble, they have the resources to cover their losses.” Sen. Kaufman, who has been a hero on this issue for his strong stands against too big to fail, added that “this is exactly what we need,” because financial institutions don’t need this kind of size to compete internationally, and they just put the nation’s financial system needlessly at risk. He explained that we cannot leave the question of size and leverage caps to the regulators, because they already have the authority under existing statutes to institute these size and leverage caps, and they haven’t done it.

While this legislation has been introduced as a standalone bill, Brown said that they would introduce in during the financial reform debate as either one or two amendments (presumably splitting the size and leverage caps). Sen. Kaufman described some other amendments, including a reinstitution of the Glass-Steagall Act with Maria Cantwell and John McCain, and a ban on proprietary trading a la the Volcker rule with Carl Levin and Jeff Merkley. However, he said, this bill was “the number one priority.”

So far, the bill has three other co-sponsors: Bob Casey, Sheldon Whitehouse and Jeff Merkley. Citing Alan Greenspan’s statement that too big to fail is too big, and the bipartisan support for the concept of breaking up the megabanks from Federal Reserve regional bank heads and other experts, Brown challenged Republicans to join them on this amendment. If they’re so concerned about ending too big to fail, the GOP should want to include this legislation, he said.

Brown predicted that the bill would help boost lending to small businesses by increasing competition. He added that “banks with one trillion dollars in liabilities are inherently risky… The SAFE Banking Act prevents megabanks from controlling too much of our nation’s wealth – no one investment bank or financial institution should be able to risk more than three percent of our nation’s gross domestic product and they should have enough money to back up their liabilities.”

Kaufman stressed that whatever legislation is written to deal with the financial crisis of 2008 must be useful for the long haul. We can limit size and leverage now or later, he cautioned, saying that this policy must last 50 years down the road, the way legislation did after the stock market crash of 1929. “Limiting size and leverage are redundant fail-safe provisions to prevent a dangerous outcome. Senator Brown and I are proposing a complementary idea, not a substitute,” Kaufman said in a statement.

Brown and Kaufman were joined on the call by David Borris of the Main Street Alliance, a coalition of small businesses who support Wall Street reform. They sent a letter to Harry Reid today expressing support for the Safe Banking Act.

This bill is where the action is in Wall Street reform. Whether or not it will truly end too big to fail can be seen in whether or not this gets added to the overall package.