Halister News

(Bloomberg) -- Large U.S. banks remain too-big-to-fail, “we must act now” to address problem, “massive structural changes” needed in financial system and among financial institutions, Minneapolis Fed Pres. Neel Kashkari said.

• “Profoundly skeptical that current efforts will ultimately work,” Kashkari said in text of remarks Mon. in Washington; speech doesn’t address monetary policy
  • Measures don’t go far enough; personally more committed since May to recommending solutions that address systemic risks posed by large banks
• Increased capital, in form of common equity, “solves many problems”; also has downsides and raises questions that include how much it could raise cost of lending and reduce economic activity
  • Idea of a tax on financial firm debt was discussed by experts at Minneapolis Fed’s May symposium, yet raises many questions
• Results from review of 8 largest U.S. banks’ living wills don’t “inspire a lot of confidence”
• Plan requiring govt to “stick losses” on long-term debt holders during crisis won’t work because it’s too complex
  • Resolving a large bank during a crisis would be akin to dismantling an aircraft carrier in middle of a hurricane
• Must take action to prevent risk from “simply going to another corner” of financial system, such as shadow banking sector
• Financial system will be exposed to “unacceptable risks if reforms are left incomplete”
• Should design regulatory framework that assumes regulators won’t have better insights into trigger for next crisis than mkt participants
  • Framework that relies on investors’ mispricing risk may work for a time, isn’t likely to work over long term
• Opposes approach to having banks’ capital be entirely equity instead of both convertible debt/equity
• NOTE: Kashkari, a former Pimco executive and Treasury official who oversaw TARP program, joined Minneapolis Fed in Jan.; he succeeded Narayana Kocherlakota and becomes voter on FOMC in 2017