U.S. Fed official to deliver plan to splinter big banks

In a speech this week, the new president of the Federal Reserve Bank of Minneapolis, Neel Kashkari, stressed that big banks in the U.S. need to be broken up.

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In his first speech as leader of the Minneapolis central bank, he stated, “In the last six years my colleagues across the Federal Reserve system have worked diligently […] and are fully utilizing the available tools under the Dodd-Frank Act to address the problem of too-big-to-fail banks. While significant progress has been made to strengthen our financial system, I believe […] the biggest banks continue to pose a significant, ongoing risk to our economy.”

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As a result, he adds, “Now is the right time for Congress to consider going further than Dodd-Frank with bold, transformational solutions to solve this problem.”

Kashkari went on to announce that the Federal Reserve Bank of Minneapolis plans to develop an actionable plan by the end of year to break up banks. But, he conceded, “Ultimately, Congress must decide whether such a transformational restructuring of our financial system is justified.” Read the full speech.

Industry reaction

As it turns out, Kashkari isn’t alone in worrying about the state of the financial system. Reuters reports that some top bankers agree they’d be better off if institutions were smaller and simpler. In exclusive interviews, six senior bankers told Reuters they’re “struggling with the costs and restrictions they face as a result of new regulations, as well as a weak global economy and troubled financial markets.”

But, executives wouldn’t want “authorities to force them to split up or downsize,” explains Reuters, since the major restructuring of banks would be tough and would have to include consideration of how post-recession regulations have been applied. Read more.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.