Daniel Tarullo, the governor of the Federal Reserve, publicly discussed on Tuesday the available policy options to end taxpayer-funded bailouts of America’s largest banks.
Tarullo’s proposals are intended to reduce the risk posed to the U.S. financial system in the event that the institutions collapse. Though the program used to bail out the banks during the recent financial crisis has nearly ended, critics maintain that the 2010 Dodd-Frank Act intended to end too-big-to-fail did not eliminate the possibility of future government bailouts, according to The Washington Post.
During a speech at the Brookings Institution, Tarullo did not specifically call for the permanent elimination of government guarantees for banks, though he did discuss policy options that could address the problem.
“The policy aim has got to be to confine the problem substantially more than it was in the years running up to the crisis,” Tarullo said, The Washington Post reports. “That seems to inexorably call for a set of complementary policy measures.”
Progress in the implementation of Dodd-Frank has been sluggish as regulators and Wall Street battle over the law’s fine print. Tarullo said that progress had been made towards implementing many of the law’s provisions but added that additional steps are needed.
One of Tarullo’s proposals includes requiring big financial companies to hold additional capital that could be accessed in the event of the firm’s collapse. New legislation would not be necessary because regulators were granted new authorities under Dodd-Frank, according to The Washington Post.
Tarullo said that the capital requirement could instill greater confidence among creditors and investors, who would bear the losses incurred over a bank’s failure.