Tuesday, March 1, 2011

Federal Reserve Bank President calls for Wall Street banks to be broken up

Kansas City Federal Reserve Bank President Thomas Hoenig calls for Wall Street banks to be broken up
A member of the US Federal Reserve has called for Wall Street's financial giants to be broken up to avoid another another crisis.
Andrew Trotman
23 Feb 2011

“I am convinced that the existence of too-big-to-fail financial institutions poses the greatest risk to the US economy,” Kansas City Federal Reserve Bank President Thomas Hoenig said.

“They must be broken up. We must make sure that large financial organizations are not in position to hold the US economy hostage. We must not allow organisations operating under the safety net to pursue high-risk activities and we cannot let large organisations put our financial system at risk.”

Mr Hoenig also argues that the most sweeping overhaul of US financial regulation since the Great Depression won’t prevent the largest banks from taking excessive risks and increasing market share.

“In my view, it is even worse than before the crisis,” he said. “As well-intentioned as the Dodd-Frank Act may be, it will not improve outcome.

The Dodd-Frank Act created a resolution authority to unwind the largest financial institutions. It also adopted the Volcker rule, which aims at reducing the odds that banks will make risky investments and put their federally-insured deposits at risk.

The Fed chief called for "Glass Steagall-type" provisions - referring to post-Depression prohibitions that forbade deposit-taking commercial banks from engaging in the riskier activities normally confined to the investment sector.

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