Fed Official Advocates Breaking Up Banks

February 24th, 2016

Fed Official Advocates Breaking Up Banks

 

Recurring Theme:  Changing Regulatory Tide

 

Summary Analysis: 

Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, delivered remarks before the Brookings Institute in Washington, DC, last week.  During his remarks, Kashkari proposed breaking up the country’s largest banks to put an end to ‘too big to fail’ institutions once and for all.  Kashkari’s polarizing perspective has not gained the support of many of his peers on the Federal Reserve Board, but did receive praise from Democratic presidential candidate Bernie Sanders.

“The biggest banks are still too big to fail and continue to pose a significant risk to our economy,” said Kashkari. To combat this, he has proposed a range of policy options, including breaking up larger banks, turning banks into public utilities “by forcing them to hold so much capital they virtually can’t fail,” and taxing leverage.  “Options such as these have been mentioned before, but in my view, policymakers and legislators have not yet seriously considered the need to implement them in the near term,” he said.  It is unclear how much momentum Kashkari’s proposals will gain as most policymakers are beginning to wind down the regulatory reforms born out of the financial crisis, and lawmakers remain preoccupied with the election year.

Resources:

Kashkari’s Remarks:

Press: