Politicians who wrote the Dodd-Frank law
insist that it eliminates the dangers posed by large, politically
connected financial institutions. At a news conference last week, Ben S.
Bernanke, the chairman of the Federal Reserve,
said that higher capital and greater liquidity requirements for big
banks, combined with more watchful regulators, were making our financial
giants stronger and less likely to require taxpayer backstops.
Outside the Beltway, however, it is hardly clear that we’ve resolved
this signal threat. Big banks are bigger than ever, and they exert
enormous power over regulators and lawmakers. Increasingly, smaller
institutions can’t compete.
So it was refreshing last week to hear Kevin M. Warsh,
a former Fed governor, speak candidly and critically about the
government backing that continues to support our largest banks. Equally
refreshing were his prescriptions for eliminating the too-big-to-fail
problem.
“We cannot have a durable, competitive, dynamic banking system that
facilitates economic growth if policy protects the franchises of
oligopolies atop the financial sector,” Mr. Warsh told an audience
at the Stanford Law School on Wednesday night. “Those ‘interconnected’
firms that find themselves dependent on implicit government support do
not serve our economy’s interest.”
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