Dallas Federal Reserve President Richard Fisher in a recent speech called for an end of the “too big to fail doctrine.” He identified the dozen largest US banks (which represent almost 70% of all banking assets) as a continuing threat to the American public. He basically admitted that all the layers of bank regulation, including Dodd-Frank, are both overly complex and unlikely to succeed in preventing future bank bailouts. His plan calls the elimination of federal protection for all bank activity that is not explicitly apart of traditional commercial banking.
Our proposal is simple and easy to understand. It can be accomplished with minimal statutory modification and implemented with as little government intervention as possible. It calls first for rolling back the federal safety net to apply only to basic, traditional commercial banking. Second, it calls for clarifying, through simple, understandable disclosures, that the federal safety net applies only to the commercial bank and its customers and never ever to the customers of any other affiliated subsidiary or the holding company. The shadow banking activities of financial institutions must not receive taxpayer support.
Fisher’s plan does not directly reduce the size of the mega banks, it reduces taxpayer liability for the non-traditional “shadow” banking.