Kashkari: 'Too Big To Fail' Still Exists, We Need To Follow This Once And For All
Speaking on CNBC, Minneapolis Fed President Neel Kashkari said that American people should not have a false sense of security that "too big to fail" can't happen again. He believes some of that risk remains and he thinks that it is necessary to consider more transformational solutions to deal with the problem once and for all.
Kashkari added that the Dodd-Frank Act has done some good with requirements of more capital, deeper liquidity and stress testing. However, in a financial crisis when multiple banks are running into trouble at the same time, there is no solution for contagion risk.
He believes now is the time to reflect on the last seven or eight years and see what have we learned, what progress has been made and what gaps remain.
Professor Johnson of MIT spoke about breaking up the banks, while Professor Admati of Stanford talked about increasing capital requirements so banks are so strong that they virtually can't fail, said Kashkari. He thinks it isn't possible to remove all the risks, but is possible to go further than we are today. It's all about cost benefit analysis and figuring out where is the optimal safety versus cost versus risk for the economy and the country.
The American people should decide if enough has been done and they have to have the best information possible to make the decision, Kashkari concluded.
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