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Dallas Federal Reserve president calls for end of “too big to fail”

Richard W. Fisher

Dallas Federal Reserve President and CEO Richard W. Fisher said in the bank’s 2011 Annual Report essay that the Dodd-Frank Act may unintentionally concentrate the banking industry as it seeks to end “too big to fail”.

“It is imperative that we end [too big to fail],” Fisher said, The Cypress Times reports. “ In my view, downsizing the behemoths over time into institutions that can be prudently managed and regulated across borders is the appropriate policy response.”

Twenty years ago, the top 10 largest U.S. banks held only 26 percent of assets, while the largest banks now hold approximately 60 percent of industry assets.

Fisher said that not only does too big to fail threaten financial stability, but it also will impede the Federal Reserve’s ability to follow and conduct policy, The Cypress Times reports.

According to author Harvey Rosenblum, the Dallas Federal Reserve’s executive vice president and director of research, too big to fail is still a danger to the U.S. financial system.

“A nightmare scenario of several big banks requiring attention might still overwhelm even the most far-reaching regulatory scheme,” Rosenblum said, according to The Cypress Times. “In all likelihood, [too big to fail] could again become TMTF—too many to fail, as happened in 2008.”

Rosenblum recommended the break-up of the nation’s largest banks into smaller, more manageable units.

“The ultimate destination—an economy relatively free from financial crises—won’t be reached until we have the fortitude to break up the giant banks,” Rosenblum said, according to The Cypress Times.

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