Out of the mouths of. . .Fed officials

Posted: 17 February 2016 in Uncategorized
Tags: , , , ,

too-big-to-fail-2

“Goldman Sachs Republican” Neel Kashkari, the new president of the Federal Reserve Bank of Minneapolis, has warned that the biggest banks in the United States “are still too big to fail and continue to pose a significant, ongoing risk to our economy.”

Although TBTF [Too Big to Fail] banks were not the sole cause of the recent financial crisis and Great Recession, there is no question that their presence at the center of our financial system contributed significantly to the magnitude of the crisis and to the extensive damage it inflicted across the economy. . .

Going forward

I believe we need to complete the important work that my colleagues are doing so that, at a minimum, we are as prepared as we can be to deal with an individual large bank failure. But given the enormous costs that would be associated with another financial crisis and the lack of certainty about whether these new tools would be effective in dealing with one, I believe we must seriously consider bolder, transformational options. Some other Federal Reserve policymakers have noted the potential benefits to considering more transformational measures. I believe we must begin this work now and give serious consideration to a range of options, including the following:

  • Breaking up large banks into smaller, less connected, less important entities.
  • Turning large banks into public utilities by forcing them to hold so much capital that they virtually can’t fail (with regulation akin to that of a nuclear power plant).
  • Taxing leverage throughout the financial system to reduce systemic risks wherever they lie.

I’m curious to see what liberal critics of Bernie Sanders have to say about Kashkari’s analysis.

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