Wednesday, February 23, 2011

Fed's Hoenig: Financial Reform: Post Crisis?

by Bill McBride on 2/23/2011 02:02:00 PM

From Kansas City Fed President Thomas Hoenig: Financial Reform: Post Crisis?

Fifteen years ago, I gave a speech entitled “Rethinking Financial Regulation,” which summarized the major threats facing our financial system. My suggestion then was to take steps to reduce interdependencies among large institutions and to limit them to relatively safe activities if they chose to provide essential banking and payments services and be protected by the federal safety net. I also argued that safety net protection and public assistance should not be extended to large organizations extensively engaged in nontraditional and high-risk activities. A final point of those remarks was that central banks must pursue policies that preserve financial stability. I am going to repeat those suggestions today, and as often as the opportunity allows. History is on my side.

Today, I am convinced that the existence of too big to fail financial institutions poses the greatest risk to the U.S. economy. The incentives for risk-taking have not changed post-crisis and the regulatory factors that helped create the crisis remain in place. We must make the largest institutions more manageable, more competitive, and more accountable. We must break up the largest banks, and could do so by expanding the Volcker Rule and significantly narrowing the scope of institutions that are now more powerful and more of a threat to our capitalistic system than prior to the crisis.
I don't always agree with Hoenig, but I think he is correct about the large banks.

Earlier posts on existing home sales and home prices:
January Existing Home Sales: 5.36 million SAAR, 7.6 months of supply
Existing Home Inventory increases 3.1% Year over Year
Real House Prices fall to 2000 Levels, Update on NAR Overstating Sales
Case-Shiller: National Home Prices Are Close to the 2009Q1 Trough
House Prices: Price-to-rent, Price-to-median Household Income