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Fed's Fisher urges breaking up 'too big to fail'
November 15, 2011 / 5:31 PM / 6 years ago

Fed's Fisher urges breaking up 'too big to fail'

NEW YORK, Nov 15 (Reuters) - Dallas Federal Reserve Bank President Richard Fisher advocated on Tuesday for an international accord that would break up into more manageable pieces any financial institutions deemed “too big to fail.”

“In my view, there is only one fail-safe way to deal with too big to fail. I believe that too-big-to-fail banks are too dangerous to permit,” Fisher said, speaking before the Columbia Business School in New York.

“I favor an international accord that would break up these institutions into more manageable size,” Fisher added.

Fisher said that the “Achilles heel” of the Dodd-Frank reforms that aim to better regulate the financial system is that they leave wiggle room for worries about adverse risk that could “perpetuate ‘exceptional and unique’ treatments, should push again come to shove.”

During his speech on the topic of large financial institutions, Fisher said that trying to head off severe repercussions from the failure of major banks may compound systemic risk rather than solve it.

“By seeking to postpone the comeuppance of investors, lenders and bank managers who made imprudent decisions, we incur the wrath of ordinary citizens and smaller entities that resent this favorable treatment, and we plant the seeds of social unrest,” said Fisher.

“We also impede the ability of the market to clear or, to ... allow the marketplace to distinguish freely those who should stand and those who should fall.”

Fisher did not discuss central bank policy.

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