NEW YORK — Calling it the “injustice of operating” in a U.S. economy “under the thumb of financial institutions that are so large they are considered ‘too big to fail,’ ” Federal Reserve Bank of Dallas President Richard Fisher proposed rolling back the federal safety net and other protections for large banks.
In a speech at the Conservative Political Action Conference at the National Harbor complex in Oxon Hill, Md., on Saturday, Fisher said banking giants, a dozen of which control almost 70 percent of the assets in the U.S. banking industry, “operate under a privileged status that exacts an unfair tax upon the American people.”
“The concentration of assets has been ongoing, but it intensified during the 2008-09 financial crisis, when several failing giants were absorbed by larger, presumably healthier ones,” he said. “The result is a lopsided financial system.”
He added the “megabanks,” — a mere 0.2 percent of banks and considered “too big to fail,” are treated differently from the other 99.8 percent of banks.
“Implicit government policy has made the megabank institutions exempt from the normal processes of bankruptcy and creative destruction,” he said. “Without fear of failure, these banks and their counterparties can take excessive risks.”
He urged Congress to rewrite the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act ” so that it actually ends the problem of banks that are too big to fail.”
He also called for a reduction of “the federal safety net — deposit insurance and the Federal Reserve’s discount window — to apply only to traditional commercial banks, and not to the nonbank affiliates of bank holding companies or the parent companies themselves.”
Customers, creditors and counterparties of all nonbank affiliates and the parent holding companies would sign a simple, legally binding, unambiguous disclosure acknowledging and accepting that there is no government guarantee, ever, to backstop their investments, he said.
He also said the largest financial holding companies should be restructured so that every one of their corporate entities is subject to a speedy bankruptcy process.
“All banks would be subject to the same regulatory oversight,” he said. “They all would be subject to the market discipline exercised by owners and creditors. Rescuing too-big-to-fail banks from their bad investment decisions imposed an enormous economic burden on the American people. It also perpetuated a sense that powerful banking mandarins operate above the law and prosper at the expense of the thrifty and hardworking citizenry.”