Fed's Kohn: Crisis has worsened too-big-to fail problem

CHICAGO Mon Nov 16, 2009 7:42pm EST

CHICAGO (Reuters) - The issue of large financial firms being perceived as "too big to fail" is bigger now than it was before the crisis, the Federal Reserve's number two official said on Monday.

Fed Vice Chairman Donald Kohn said bailouts have worsened the "too big to fail" problem and said the government needs a way to resolve big institutions in an orderly way.

Kohn, who was answering audience questions at Northwestern University following a speech, also said he was worried that efforts to spot bubbles could result in policy makers spotting more bubbles than actually exist. However, he said, extreme bubbles can be spotted.

Kohn also said the return of regulators to their own patches after "extraordinarily good" coordination during the crisis was more evidence the financial system is improving.

(Reporting by Karen Pierog; writing by Kristina Cooke; Editing by Leslie Adler)

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