Fed's Fisher: Too-big-to-fail banks are "crony" capitalists

NATIONAL HARBOR, Maryland Sat Mar 16, 2013 1:52pm EDT

Richard Fisher, president and CEO of the Federal Reserve Bank of Dallas, speaks during a conference before the Committee for the Republic Salon at the National Press Club in Washington January 16, 2013. REUTERS/Jose Luis Magana

Richard Fisher, president and CEO of the Federal Reserve Bank of Dallas, speaks during a conference before the Committee for the Republic Salon at the National Press Club in Washington January 16, 2013.

Credit: Reuters/Jose Luis Magana

NATIONAL HARBOR, Maryland (Reuters) - The largest U.S. banks are "practitioners of crony capitalism," need to be broken up to ensure they are no longer considered too big to fail, and continue to threaten financial stability, a top Federal Reserve official said on Saturday.

Richard Fisher, president of the Dallas Fed, has been a critic of Wall Street's disproportionate influence since the financial crisis. But he was now taking his message to an unusual audience for a central banker: a high-profile Republican political action committee.

Fisher said the existence of banks that are seen as likely to receive government bailouts if they fail gives them an unfair advantage, hurting economic competitiveness.

"These institutions operate under a privileged status that exacts an unfair tax upon the American people," he said on the last day of the annual Conservative Political Action Conference (CPAC).

"They represent not only a threat to financial stability but to fair and open competition … (and) are the practitioners of crony capitalism and not the agents of democratic capitalism that makes our country great," said Fisher, who has also been a vocal opponent of the Fed's unconventional monetary stimulus policies.

Fisher's vision pits him directly against Fed Chairman Ben Bernanke, who recently argued during congressional testimony that regulators had made significant progress in addressing the problem of too big to fail. Bernanke asserted that market expectations that large financial institutions would be rescued is wrong.

But Fisher said mega banks still have a significant funding advantage over its competitors, as well as other advantages. To address this problem, he called for a rolling back of deposit insurance so that it would extend only to deposits of commercial banks, not the investment arms of bank holding companies.

"At the Dallas Fed, we believe that whatever the precise subsidy number is, it exists, it is significant, and it allows the biggest banking organizations, along with their many nonbank subsidiaries - investment firms, securities lenders, finance companies - to grow larger and riskier," he said.

Fisher argued Dodd-Frank financial reforms were overly complex and therefore counterproductive.

"Regulators cannot enforce rules that are not easily understood," he said.

(Reporting by Pedro Nicolaci da Costa; editing by Gunna Dickson)

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Comments (13)
Really now? Who can argue with that sentiment.

Mar 16, 2013 1:09pm EDT  --  Report as abuse
chekovmerlin wrote:
Praise be to Andew Jackson’s spirit and the Spirit of 1832 (Veto of the Second National Bank of the U.S.) Praise!

Mar 16, 2013 1:57pm EDT  --  Report as abuse
otrcomm wrote:
Too bad Cyprus, Greece, Italy, and Ireland don’t listen to this. Instead of bailing out their banks and throwing their populace under the bus, they should let the banks fail and restructure.

Mar 16, 2013 2:08pm EDT  --  Report as abuse
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