Earlier this week, Richard Fisher, president of the Federal Reserve Bank of Dallas, told Congress that the 2010 Dodd-Frank Act perpetuates the too-big-to-fail status of the country’s largest banks. Which is unfortunate because better securing our financial system against the sort of collapses we saw in 2008 was precisely what Dodd-Frank was intentioned to do.
He ultimately concluded that the act makes these banks more dangerous by doing nothing to scale down the problem and only allowing banks and the accompanying bureaucracy to grow larger.
So what did Fisher propose? In what he calls a three-step solution, the Dallas Fed president recommends first restructuring the banks in a manner that makes none of them inherently important to the U.S. economy. He would only extend FDIC insurance to the basic commercial bank operated by each financial holding company, leaving depositors insured but those who engage in other financial arrangements such as securities trading, insurance, or real estate, without federal assistance of any type. The last part of his plan requires those doing such business to sign a waiver acknowledging they have no federal backstop.
At the end of his speech, Fisher again warned Congress of the moral hazard that now exists for banks. He urged the government to ignore the “siren song of megabanks”
