Lessons from the Crisis: Ending Too Big To Fail

Lessons from the Crisis: Ending Too Big To Fail

Ethical Markets applauds the Minneapolis Fed on opening up their website for comments on its proposals to address and end To-Big-To-Fail.  We agree with their three main points: 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; taxing leverage throughout the financial system to reduce systemic risks wherever they lie. We refer to our research on all this on our Reforming Global Finance and SRI News categories.   ~ Hazel Henderson, Editor

Today I will offer my assessment of the current status and outlook for ending the problem of too big to fail (TBTF) banks.1 I come at this problem from the perspective of a policymaker who was on the front line responding to the 2008 financial crisis. When Congress moved quickly to pass the Dodd-Frank Act (the Act) in 2010, I strongly supported the need for financial reform, but I wanted to see the Act implemented before I drew firm conclusions about whether it solved TBTF2.

In the last six years my colleagues across the Federal Reserve System have worked diligently under the reform framework Congress established and are fully utilizing the available tools under the Act to address TBTF. While significant progress has been made to strengthen our financial system, I believe the Act did not go far enough. I believe the biggest banks are still too big to fail and continue to pose a significant, ongoing risk to our economy.

Continue reading