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Politics : American Presidential Politics and foreign affairs

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To: TimF who wrote (41647)	3/5/2010 2:34:04 AM
From: DuckTapeSunroof	Read Replies (1) of 71588

Head of Dallas Fed calls for banks’ break-up By Henny Sender in New York Published: March 3 2010 23:59 Last updated: March 3 2010 23:59 ft.com Richard Fisher, president and chief executive officer of the Federal Reserve Bank of Dallas, has called for large institutions to be broken up in the US and abroad to guard against the problem of them becoming “too big to fail”. In a speech in New York on Wednesday Mr Fisher said banks that were too big to fail and too complex to manage posed the biggest threat to the stability of the financial system. “Big banks and many of their creditors assume the Fed and other government agencies will cushion the fall and assume the damages even if their troubles stem from negligence or trickery,” he said. “They have only to look at recent experience to confirm that assumption. My preference is for a more prophylactic approach, an international accord to break up these institutions into ones of more manageable size.” If this needed to be done unilaterally, he said, “we should. And this should be done before the next financial crisis because it surely cannot be done in the middle of a crisis”. Mr Fisher has a reputation for taking an independent stance on regulation. His approach is not likely to find a sympathetic reception among US regulators or private sector bankers, who argue that such a stand would hurt America’s global competitiveness. Mr Fisher made his remarks against a backdrop of increasing concentration in the banking system. By last year the 10 largest banks in the US accounted for 60 per cent of all banking assets, up from 26 per cent 20 years ago. Government action at the height of the crisis has contributed to that concentration by encouraging JPMorgan Chase to take over Bear Stearns and Washington Mutual. Mr Fisher was also critical of the fact that, in many of the government-orchestrated rescues, creditors and shareholders should have paid a price but did not. A big part of the resolution regime now being thrashed out is likely to involve unsecured creditors being paid less than 100 cents on the dollar. At the same time, Mr Fisher adopted a more conventional line when it came to arguing in favour of central bank independence, noting “a politicised central bank is a crippled central bank”. He cited Greece as an example of the virtues of an independent central bank since Athens was no longer able to print money and inflate its way out of fiscal profligacy. “The burden for fiscal malfeasance now rests on the shoulders of those responsible for it,” he said. Copyright The Financial Times Limited 2010. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.

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