Federal Reserve Bank of Minneapolis President Calls for End of "Too-Big-to-Fail" Banks

Federal Reserve Bank of Minneapolis President Neel Kashkari called for increased capital requirements and other measures to address systemic risk. "I believe that the biggest banks are still too big to fail" ("TBTF"), he argued, "and continue to pose a significant, ongoing risk to our economy."

Mr. Kashkari emphasized that he based this conclusion on lessons learned from the financial crisis: specifically, the likelihood that future policymakers will be as unable to foresee the next crisis as they were the previous crisis, and that the externalities of a large bank failure can be massive. He added that large banks can create efficiencies through economies of scale, but that the associated costs to society outweigh the benefits.

Mr. Kashkari suggested that the following "transformational options" be considered in order to prevent another financial crisis:

• "Breaking up large banks into smaller, less connected and less important entities."

• "Turning large banks into public utilities by forcing them to hold so much capital that they virtually can't fail (with regulation akin to that of a nuclear power plant)."

• "Taxing leverage throughout the financial system to reduce systemic risks wherever they lie."

Mr. Kashkari also announced that the Federal Reserve Bank of Minneapolis is "launching a major initiative to consider [these] transformational options and develop an actionable plan to end TBTF." He explained that the initiative will include a "series of policy symposiums" and policy briefs that will culminate in the Federal Reserve Bank of Minneapolis' development of an "actionable plan to end TBTF," which will be released by the end of 2016.

Mr. Kashkari delivered his remarks at the Brookings Institute.