Hoenig suggests using the Volcker rule to break up the big banks
Hoenig, speaking about banks, spoke yesterday explaining exactly what we have said all along: Dodd-Frank does nothing to stop the problem of too big too fail. The very best way of ending TBTF is by not baling out the banks. Via Reuters:
He said regulators still lack sufficient powers to rein in financial giants, adding that the government's implicit protection offers them a number of unfair advantages such as low borrowing costs and strong credit ratings.The so-called Volcker rule, named after former Fed Chairman Paul Volcker who proposed it, puts restrictions on the trading banks can do if it is not for their customers' accounts.
"We must break up the largest banks, and could do so by expanding the Volcker Rule and significantly narrowing the scope of institutions that are now more powerful and more of a threat to our capitalistic system than prior to the crisis," Hoenig told a meeting of the Women in Housing and Finance.
"We must make sure that large financial organizations are not in position to hold the U.S. economy hostage.
The Fed will oversee these firms, which will likely face higher capital standards, and they could be dismantled by the government if they start to topple. Bank holding companies with assets of $50 billion or more automatically fall under supervision, which means firms such as Goldman Sachs Group Inc and JPMorgan Chase would likely be covered.