Federal Reserve Bank of St. Louis President James Bullard said he would back limiting the size of individual U.S. banks to a proportion of gross domestic product, while warning of the risks from firms that are “too big to fail.”
“Scaling by GDP would make sense,” Bullard said to reporters Thursday in St. Louis. “Of course, the devil is in the details of exactly how you would do that.”
Fed Governor Daniel Tarullo said Wednesday that the U.S. Congress should weigh capping the size of the largest financial institutions. U.S. law permits the biggest banks to grow to such an extent that they increase “perceptions of at least some residual too-big-to-fail quality,” Tarullo said in a speech.
“I appreciate that Governor Tarullo is entertaining the idea of size restrictions,” Bullard said. “This is something I do back. We would be better served by putting size restrictions generally on financial firms.”
“I do not think we need firms that are so large and complicated in order to have a healthy intermediation sector in the U.S.,” Bullard said. “We would be better served by a setup that had smaller firms and a competitive landscape across the sector.”
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