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While Washington hems and haws over weak and meek Wall Street reforms, a gutsy, populist-minded reform has popped out of the least likely of places: the Federal Reserve Bank of Dallas.
Richard Fisher, the president of this branch of the Fed and a peer-in-good-standing of Wall Street’s financial elite, has forthrightly uttered a truth in public that most Washington leaders are even afraid to whisper in private: Banks that are “too big to fail” are too big, period. As Fisher put it: ” A truly effective restructuring of our regulatory regime will have to neutralize what I consider to be the greatest threat to our financial system’s stability—the so-called too-big-to-fail [banks].”
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The 10 biggest banks now have 60 percent of all banking assets. Fisher notes that the Wall Street executives running these behemoths “may believe they can act recklessly without fear of paying the ultimate penalty. They 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. They have only to look to recent experience to confirm that assumption.”
Thus, Fisher proposes “an international accord to break up these institutions into ones of more manageable size… If we have to do this unilaterally, we should.” He quotes Winston Churchill saying that “in finance, everything that is agreeable is unsound and everything that is sound is disagreeable.” Fisher concludes that “the disagreeable but sound thing to do is to dismantle them over time into institutions that can be prudently managed and regulated across borders. And this should be done before the next financial crisis, because it surely cannot be done in the middle of a crisis.”
Now all we need is a Congress as gutsy as this banker!
“Lessons Learned, Convictions Confirmed Remarks before the Council on Foreign Relations,” www.dallasfed.org, March 3, 2010.