Federal Reserve Bank of Dallas President Richard Fisher Joins the Long List of Those Calling for Giant Banks to Be Broken Up → Washingtons Blog
Federal Reserve Bank of Dallas President Richard Fisher Joins the Long List of Those Calling for Giant Banks to Be Broken Up - Washingtons Blog

Wednesday, March 3, 2010

Federal Reserve Bank of Dallas President Richard Fisher Joins the Long List of Those Calling for Giant Banks to Be Broken Up

As Bloomberg notes:

Federal Reserve Bank of Dallas President Richard Fisher called for an international pact to break up banks whose collapse would threaten the financial system, a position that goes beyond other Fed officials.

While the international aspect of Fisher's proposal may be unusual, other Fed officials have also called for breaking up the TBTFs, including:

As I noted in October, many others have also called for breaking up the banking giants:

The following top economists and financial experts believe that the economy cannot recover unless the big, insolvent banks are broken up in an orderly fashio

  • Dean and professor of finance and economics at Columbia Business School, and chairman of the Council of Economic Advisers under President George W. Bush, R. Glenn Hubbard
  • The leading monetary economist and co-author with Milton Friedman of the leading treatise on the Great Depression, Anna Schwartz
  • Economics professor and senior regulator during the S & L crisis, William K. Black
  • Professor of entrepreneurship and finance at the Chicago Booth School of Business, Luigi Zingales

Others, like Nobel prize-winning economist Paul Krugman, think that the giant insolvent banks may need to be temporarily nationalized.

In addition, many top economists and financial experts, including Bank of Israel Governor Stanley Fischer - who was Ben Bernanke’s thesis adviser at MIT - say that - at the very least - the size of the financial giants should be limited.

Even the Bank of International Settlements - the "Central Banks' Central Bank" - has slammed too big to fail. As summarized by the Financial Times:

The report was particularly scathing in its assessment of governments’ attempts to clean up their banks. “The reluctance of officials to quickly clean up the banks, many of which are now owned in large part by governments, may well delay recovery,” it said, adding that government interventions had ingrained the belief that some banks were too big or too interconnected to fail.

This was dangerous because it reinforced the risks of moral hazard which might lead to an even bigger financial crisis in future.


  1. I am afraid that the only way TBTF will change is when the whole system reboots after a blue screen of death.

  2. Rather than preventing institutions from becoming too big, would it not be better to increase the capital requirements as the institute increases in size.

    The advantage of this is that an institution retains the decision power on what size is appropriate to provide the best services to the customer, whilst the economy is protected by ensuring that the institution is able to meet its liabilities in the event that it can no longer sustain its activities.

    For example today a bank has a minimum tier 1 capital requirement of 4%. This percentage could increase all the way up to 100%, providing 100% protection, the larger the bank becomes. However, the cost of increasing capital would have to be weighed up against the advantages of increasing the size of the institution. Therefore the company, and not the government, would determine what size is best without risk to the economy.


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