Tags: Fed | Too | Big | Fail

Kansas City Fed Chief: Kill ‘Too-Big-to-Fail’ Policies

Wednesday, 11 Apr 2012 09:57 AM

Federal Reserve Bank of Kansas City President Esther George said regulators must eliminate "too-big-to-fail" policies that bail out large financial institutions during times of crisis.

“The most critical issue in addressing TBTF concerns is having policymakers with the resolve to follow through,” George said in the text of remarks given in New York.

The U.S. must “correct the misaligned incentives and the improper expansion of federal safety net protections that encouraged and enabled institutions to take excessive risks.”

To achieve those goals, George said that regulators must not “view stress tests, other forms of quantitative analysis and models used by macroprudential supervisors as being a substitute or replacement for examiners and onsite supervision.”

The Fed said last month that 15 of the 19 largest U.S. banks could maintain adequate capital levels even in a severe recession scenario that assumes they continue to pay dividends and buy back stock.

The results of the so-called stress tests showed that nearly three years of economic expansion have helped U.S. banks raise profits, rebuild capital, and increase liquidity after the collapse of Lehman Brothers Holdings Inc. in 2008 nearly toppled the financial system.


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