Speaking at the Council on Foreign Relations in New York on Wednesday, Dallas Fed President Richard Fisher said large, systemically important “too-big-to-fail” [TBTF] banks should be broken up in order to make the financial system more stable.
In his most explicit call yet for reshaping the financial industry, Fisher said that [Dallas Fed]: ” given the danger these institutions pose to spreading debilitating viruses throughout the financial world, my preference is for a more prophylactic approach: an international accord to break up these institutions into ones of more manageable size–more manageable for both the executives of these institutions and their regulatory supervisors.”
Fisher also said that he aligns himself closer to Paul Volcker’s argument on the issue, adding that he’d support unilateral action by the U.S. on this matter.
“I would say that if we have to do this unilaterally, we should. I know that will hardly endear me to an audience in New York, but that’s how I see it. Winston Churchill said that “in finance, everything that is agreeable is unsound and everything that is sound is disagreeable.” I think the disagreeable but sound thing to do regarding institutions that are TBTF is to dismantle them over time into institutions that can be prudently managed and regulated across borders. And this should be done before the next financial crisis, because it surely cannot be done in the middle of a crisis.”
In his speech, the Dallas Fed President did not address current economic conditions or monetary policy, but in an interview on CNBC, he said the US economy is unlikely to go into a double-dip recession, but the recovery will be anemic.
