Split big banks into smaller ones: Fed official

Noting that the biggest banks continue to pose a significant risk to the US economy, Indian-American top Federal bank official Neel Kashkari has called for breaking them into smaller ones.

“I believe the biggest banks are still too-big-to-fail and continue to pose a significant, ongoing risk to our economy,” Neel Kashkari, 42, the President of the Federal Reserve Bank of Minneapolis, said in his first major public appearance after occupying the top fed position recently.

Mr Kashkari, who served in the Bush administration as a top Treasury official at the time of the 2008 financial crisis, said that enough time has passed to understand causes of the crisis and it is still fresh in their memories.

“Now (it) is the right time for US Congress to consider going further than Dodd-Frank with bold, transformational sol-utions to solve this problem once and for all,” Mr Kashkari, the former US Treasury official who led the 2008 bailout programme for the nation’s biggest banks, said in his remarks at the Brookings Institute, a top US think-tank.

Mr Kashkari, who lost the last election of governor in California, said the policy makers must give serious consideration to a range of options including breaking up large banks into smaller, less connected, less important entities as efforts to rein in the banks through the 2010 Dodd-Frank law “did not go far enough.”

He suggested turning large banks into public utilities by forcing them to hold so much capital that they virtually can not fail (with regulation akin to that of a nuclear power plant) and taxing leverage throughout the financial system to reduce systemic risks wherever they lie.

“Options such as these have been mentioned before, but in my view, policymakers and legislators have not yet seriously considered the need to implement them in the near term. They are transformational, which can be unsettling,” Mr Kashkari said.

The financial sector has lobbied hard to preserve its current structure and thrown up endless objections to fundamental change.