The Fed and the Coming Redefinition of Government Regulation - Too Big to Fail - Too Big to Exist

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James B. Bullard President of the Federal Reserve Bank of St. Louis presentation at the Business Today International Conference - Weathering the Storm: The Challenges and Opportunities of a Global Slowdown


Key Problem: Too Big to Fail

• The crisis showed that large financial institutions worldwide were "too big to fail." (TBTF)
• If we let large financial firms fail suddenly, global panic ensues.
• Reform efforts must focus on getting this intolerable situation under control.
  

The Rise of the Shadow Banking Sector

• Large, global non-bank financial institutions took on bank-like activities and a large fraction of all financial intermediation in the U.S.
• Some institutions borrowed short - on collateral - to fund longer term investments.
• The crisis showed that runs on non-bank, non-deposit-taking financial institutions are possible as well as very destructive.
• This was not previously considered a problem.

CGW here - please consider our previous report Electronic Run On Banks - $550 Billion Withdrawn In 1 Hour, Federal Reserve Halts Withdrawls - US Economy Would Have Collapsed that was published Febuary 8, 2009.


Smaller Banks are Not the Problem

• Smaller banks did not cause the problem and do not need to be re-regulated.

The Fed and the Coming Redefinition of Government Regulation -