By Michael S. Derby
The leader of the Dallas Fed took his campaign to end the threat posed by too-big-to-fail banks to a conservative activist conference Saturday.
Richard Fisher, who leads the Federal Reserve Bank of Dallas, spoke before the Conservative Political Action Conference, a decidedly unusual venue for a central banker. Mr. Fisher is not currently a voting member of the monetary policy setting Federal Open Market Committee, and he did not address the monetary policy or economic outlook in his prepared remarks.
Instead, the central banker used his speech to again argue that in the wake of the financial crisis, the problem of bank concentration has only gotten worse, and that the Dodd-Frank financial reform legislation that was supposed to help fix the problem didn't.
Mr. Fisher again argued a core of banks have gotten so large that their failure would be a major risk to the system, and because of that, these banks are effectively too big to fail. The official's speech gave him a chance to repeat a list of reforms he believes will reduce the risk of failure and eliminate the advantages to these firms, which he did not name, that come from an implied government back stop.
"Whatever the precise subsidy number is, it exists, it is significant, and it allows the biggest banking organizations, along with their many nonbank subsidiaries (investment firms, securities lenders, finance companies), to grow larger and riskier," Mr. Fisher said.
"This is patently unfair," he said, adding "it makes for an uneven playing field, tilted to the advantage of Wall Street against Main Street, placing the financial system and the economy in constant jeopardy." The complexity of the Dodd-Frank legislation makes it too difficult to enforce, Mr. Fisher said.
The central banker argued that the safety of deposit insurance and the Fed's emergency lending Discount Window should be open only to traditional commercial banks, and "not to the nonbank affiliates of bank holding companies or the parent companies themselves."
He also wants investors and others involved with the parts of banks not able to access the safety net to sign pledges signaling they understand there is no government backup for this part of the bank's operation. Mr. Fisher also wants the biggest financial holding companies to be restructured so they can be put through the bankruptcy process if need be.
The policy maker said in his ideal world, "all banks would be subject to the same regulatory oversight--and most important, they all would be subject to the market discipline exercised by owners and creditors."
Mr. Fisher's idea have largely failed to find traction with other central bankers so far. That said, over recent weeks the issue of what is to be done with these mega banks has been heating up on Capitol Hill, suggesting the ultimate outcome of the issue remains far from settled.
Write to Michael S. Derby at firstname.lastname@example.org
(END) Dow Jones Newswires
March 16, 2013 11:44 ET (15:44 GMT)
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