Minneapolis Fed Chief Urges Breaking Up Big Banks

Photo (cc) by Images_of_Money

Big banks are still too big, according to Neel Kashkari, president of the Federal Reserve Bank of Minneapolis. Speaking at a recent Brookings Institution event, Kashkari said the Dodd-Frank Act, passed in the wake of the Great Recession of 2007-2009, didn’t go far enough in the new regulations it created.

Kashkari knows a few things about dealing with the recession. He headed the Troubled Asset Relief Program (TARP) from 2008-2009 under Presidents George W. Bush and Barack Obama. The program, which bought up questionable assets from banks, was a central part of the federal government’s efforts to respond to the economic crisis.

At the Brookings symposium, he argued that while the recession had many causes, the existence of the “Too Big to Fail” banks made things worse. The phrase “Too Big to Fail” refers to a handful of banks that are so large and deeply ingrained into the financial system that their failure would be catastrophic for the national, and possibly global, economy.

Kashkari has joined the ranks of others on both sides of the political spectrum who say these banks need to be broken up now, while the economy is relatively stable, to make sure the problem doesn’t resurface.

Donald Kohn, a Brookings senior fellow and former member of the Federal Reserve Board disagreed with Kashkari. He said Dodd-Frank created proper controls that allow the unwinding of complex financial institutions that are close to failing. He said that further government intervention in private business would be unjustified unless he could see more evidence that the new fail-safe programs wouldn’t work.

See the discussion for yourself here.

Are some banks too big, or should the government keep its hands off? Let us know in the comments or weigh in on our Facebook page.

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