Minneapolis Federal Reserve Bank President Neel Kashkari, who on Tuesday pressed for a greater effort in breaking up big U.S. banks, said he hopes to garner input for a plan and submit it to the public by the end of the year.
Mr. Kashkari, in an interview Wednesday on CNBC, acknowledged progress in regulating big banks since the 2008 financial crisis, but questioned whether regulators would have used those new powers to deal with that crisis.
“If we had the tools then that we have now, would we have actually used them? Would we have actually haircut bondholders in a stressed economic environment, or a crisis environment? To me, the answer is no way. We never would have done it,” he said. Mr. Kashkari, a former Treasury Department official, reiterated his call made Tuesday at the Brookings Institution for policy options on how to break large U.S. banks into “smaller, less connected, less important entities.”
In his appearance on CNBC, Mr. Kashkari said various proposals floated over the years to further deal with big banks haven't been given “serious consideration, because they’re transformational. And that can scare people.”
Mr. Kashkari told the financial network that he would like to bring those experts together to debate their proposals. By end of the year the Minneapolis Fed would “use our judgment, put all of that together, and present to the public an actionable plan that we think can really address this once and for all,” he said.
Mr. Kashkari said smaller and midsize banks would be able to fill any void created by breaking up the larger banking institutions.
This is an interesting article because he doesn't mention much or anything about why he wants to breakup big banks. This is a major plan with very little insight on to what he hopes to achieve at the end of the year other to break them up. Who decides what banks will be split up, why will they be split up? It will be an interesting subject to follow as we go through the year on if we get any updates, or if this will be pure speculation as it has been over the pst few years?
This proposal to break up big banks is very interesting in light of the economy seemingly turning around currently with the recent increase in interest rates. I am surprised that Mr. Kashkari did not go into more detail as to why he would like to see big banks to be broken up into small and medium size banks. However, in light of the recent 2008 recession, it would not surprise me if it would have something to do with the housing market. The bigger a bank is able to get the more loans they are able to give out and thus it is harder for people to keep track of all the business that goes on, thus leading to a financial crisis as in 2008. By having smaller banks, it is easier for officials to make sure the business that is being conducted is being done correctly. While this is only one reason and there are many others, I think it will be interesting to see if they will indeed be able to break up the big banks or whether it will remain as it is today.
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