Powell: Reforms to limit “too big to fail” to take years, “success not assured”

Jerome Powell

Jerome Powell

Federal Reserve Board Governor Jerome Powell said on Monday that regulatory efforts to limit the growth of “too big to fail” institutions will take years, adding that success is not guaranteed.

“My own view is that the framework of current reforms is promising and should be given time to work,” Powell said in prepared remarks. “In any case, too big to fail must end, even if more intrusive measures prove necessary in the end.”

Lawmakers, regulators and industry groups have recently begun debating whether enough has been done to prevent the biggest banks’ failures from bringing down the financial system. Sens. Sharrod Brown (D-Ohio) and David Vitter (R-La.) said last week that they will introduce measures aimed at addressing the issue of too-big-to-fail.

Brown has, in the past, proposed putting a cap on big banks’ non-deposit liabilities, a proposal that has garnered support from regulators both past and present. Powell said that a liability-asset cap would force firms to rely more on stable funding while allowing them to diversify their banking activities, Reuters reports.

Additionally, Powell said that the current system still provides a subsidy to large banks “to account for the possibility of a government bailout in the event of failure,” adding that the subsidy may encourage “’too-bigness.’”

“The market needs to believe…that every private financial institution can fail and be resolved under our laws without imposing undue costs on society,” Powell said. “If these reforms achieve their purpose, in my view they would be preferable to a government-imposed break-up, which would likely involve arbitrary judgments, efficiency losses and a difficult transition.”

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