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Tuesday, March 5, 2013

Fed’s Powell: Reforms to End ‘Too Big to Fail’ Need Time to Work

Reforms to end “too big to fail” are promising and need time to work, Federal Reserve Governor Jerome Powell said yesterday at the Institute of International Bankers Conference in Washington, D.C.

“[E]fforts by U.S. and global regulators to fight too big to fail are generally on the right track. The Basel III and Dodd-Frank reforms designed to reduce the probability of failure of large banking firms are sensible and, for the most part, targeted at the causes of the crisis,” Powell said.

“They [also] are being implemented thoughtfully and effectively,” he added. “I believe that those Financial Stability Board and Dodd-Frank reforms designed to permit the resolution of systemic firms without taxpayer exposure or undue disruption are very promising.”

Powell rejected proposals to reinstate the Glass-Steagall law, which separated commercial banks from investment banks. Resurrecting Glass-Steagall “seems neither directly related to the causes of the financial crisis, nor likely to help end too big to fail,” he said.

“[L]osses at the commercial banks were more importantly a consequence of bad credit underwriting and the failure of risk management systems to keep up with innovation and the explosive growth in securitization -- developments that were not fundamentally driven by the repeal of Glass-Steagall,” Powell said.

Read Powell’s speech.

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