Halister News

(Bloomberg) -- Dodd-Frank Act didn’t “go far enough,” biggest banks are “still too big to fail and continue to pose a significant, ongoing risk to our economy,” Minneapolis Fed Pres. Neel Kashkari said in his 1st speech as central banker.

• “We won’t see the next crisis coming,” Kashkari said in text of speech Tuesday in Washington; he becomes FOMC voter in 2017; doesn’t mention monetary policy outlook
• Now is “right time” for Congress to consider going further than Dodd-Frank; risks of not acting “are just too great”
• Must give “serious consideration” to options that include breaking up large banks, turning them into “public utilities” with so much capital they “virtually can’t fail,” taxing leverage throughout financial system
• “Skeptical” that new tools which would impose losses on creditors will be useful
  • “No rational policy maker” would risk restructuring law firms, forcing losses on creditors/counterparties using new tools in a crisis; officials will be forced to do bail outs
• Minneapolis Fed is developing own plan to end problem of “too big to fail” banks by yr end; ultimately, Congress must decide whether “transformational restructuring” of U.S. financial system is justified
• Large banks must be able to make mistakes, without requiring taxpayer bailouts and triggering widespread economic damage
• “No simple formula that defines what is systemic”
  • Bank failure might not be systemic in strong, stable economy; in a weak economy with “skittish” mkts, policy makers would be “very worried”
• Only balance sheet of federal govt would be “strong enough” to stabilize financial system in event of future large shock that “overwhelms all of our efforts”
• NOTE: Kashkari, a former Pimco executive and Treasury official who oversaw TARP program, joined Minneapolis Fed in Jan.; he succeeded Narayana Kocherlakota