Fed's Kashkari, in first speech, suggests radical Wall St. overhaul

Tue Feb 16, 2016 2:11pm EST
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By Lindsay Dunsmuir and Jason Lange

WASHINGTON (Reuters) - The U.S. Federal Reserve's newest policymaker and a former point man for the government's bailout of the financial industry on Tuesday called on lawmakers to take radical action to rein in banks and protect taxpayers.

In his first speech as head of the Minneapolis Fed, Neel Kashkari, a Goldman Sachs executive before he worked at the U.S. Treasury, urged Congress to consider "bold, transformational" rules including the breaking up of the nation's largest banks to avoid bailouts.

Kashkari indicated that his work at Treasury, where he managed a key part of the banking and auto industry bailouts during the financial crisis of 2007-2009, helped inform his current view.

A set of regulations introduced since the crisis, known as Dodd-Frank, did not go far enough, he said in prepared remarks that straddled the line between the Fed's policymaking remit and political advocacy.

"Now is the right time for Congress to consider going further than Dodd-Frank with bold, transformational solutions to solve this problem once and for all," Kashkari said, arguing that the biggest banks are still too big to fail and continue to pose a significant, ongoing risk to the U.S. economy.

He urged lawmakers to consider breaking up large banks into "smaller, less connected, less important entities" and took a swipe at existing rules for winding down failing banks should they run into difficulty amid a weak global economy.

"I am far more skeptical that these tools will be useful," Kashkari said, adding that "we won't see the next crisis coming."

He said Congress should consider compelling banks to hold so much capital that they "virtually can't fail," in effect treating them like public utilities.   Continued...

Neel Kashkari speaks on stage during the California Republican Party Spring Convention in Burlingame, California March 16, 2014  REUTERS/Stephen Lam