The Dallas Fed Is Calling For The Immediate Breakup Of Large Banks

The Dallas Fed Is Calling For The Immediate Breakup Of Large Banks

By Joe Weisenthal

March 21, 2012

It’s hard not to think it’s a big deal when a branch of the Federal
Reserve system calls for the breakup of major American banks.

The bank has just released its annual report, and the title of the letter is: Choosing the Road to Prosperity Why We Must End Too Big to Fail—Now.

Here’s the full letter from Dallas Fed President Richard Fisher,
generally known as one of the most hawkish and conservative Fed

Letter from the President,

If you are running one of the “too-big- to-fail” (TBTF)
banks—alternatively known as “systemically important financial
institutions,” or SIFIs—I doubt you are going to like what you read in
this annual report essay written by Harvey Rosenblum, the head of the
Dallas Fed’s Research Department, a highly regarded Federal Reserve
veteran of 40 years and the former president of the National Association
for Business Economics.

Memory fades with the passage of time. Yet it is important to recall
that it was in recog- nition of the precarious position in which the
TBTF banks and SIFIs placed our economy in 2008 that the U.S. Congress
passed into law the Dodd–Frank Wall Street Reform and Consumer
Protection Act (Dodd–Frank). While the act established a number of new
macroprudential features to help promote financial stability, its
overarching purpose, as stated unambiguously in its preamble, is ending

However, Dodd–Frank does not eradi- cate TBTF. Indeed, it is our view
at the Dallas Fed that it may actually perpetuate an already dangerous
trend of increasing banking industry concentration. More than half of
banking industry assets are on the books of just five institutions. The
top 10 banks now account for 61 percent of commercial banking assets,
substantially more than the 26 percent of only 20 years ago; their
combined assets equate to half of our nation’s GDP. Further, as
Rosenblum argues in his essay, there are signs that Dodd– Frank’s
complexity and opaqueness may evenbe working against the economic
recovery. In addition to remaining a lingering threat to financial
stability, these megabanks signifi- cantly hamper the Federal Reserve’s
ability to properly conduct monetary policy….

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