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Causal Capital ~ The Knowledge Capital Specialists

Kashkari's Too Big to Fail is even bigger

If you are a banker or perhaps a risk manager in a bank struggling with the onslaught of regulation from Basel III to Dodd-Frank Wall Street Reform Act, you might just have this feeling that enough is enough. If Kashkari has his way, this is just the beginning.

Neel Kashkari's Plan to Deal With 'Too Big to Fail' | Bloomberg

More transformational measures were taken off the table during the wave of financial reform since the Global Financial Crisis and we quote:

Like breaking up the banks or putting so much capital in the big banks that you turn them into utilities so that they virtually can’t fail … but we have not taken the risk of a bailout off the table. If a number of banks ran into trouble at the same time, I [Neel Kashkari] think policy makers today would be forced to bail them out.

Neel Kashkari | Minneapolis Fed Chief

If one looks at from a different perspective, as the Bloomberg team have done, banks have benefited well out of the Global Financial Crisis, very well. Bailouts saved the system, yes but they have also allowed the big players to massively grow their asset base.

Total Assets of banks has climbed from bailouts | Bloomberg

To extend this thinking further, banks have become bigger, even bigger than too big to fail. A scary but ironical thought but a situation that has cost the tax payer and divided Wall Street from Main Street.

This is not just an American problem, this is true all round the world ... I don't want the American people to think that we have solved too big to fail when I [Neel Kashkari] believe in my heart that we have not solved it yet.

Neel Kashkari | Minneapolis Fed Chief

This is a good interview and very much summarises what is fair in the banking domain, bailouts and some of those paradoxes too. Neel Kashkari is, in the context of all of this a knight in shining armour but if the policy makers are going to address Too Big to Fail, they are probably going to need to rework the entire system.


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