Calling too-big-to-fail banks “the most critical issue facing our financial system,” a top Federal Reserve official on Tuesday urged new laws to address the problem, including ending Fed emergency lending powers.
“During the crisis, and still today, many people view government-provided backstops to large financial firms as a necessity to prevent financial system malfunctions,” Richmond Federal Reserve President Jeffrey Lacker said in remarks prepared for delivery to the Stanford Institute for Economic Policy Research.
But so long as those backstops are seen as available, he argued, investors will continue to take risks they would not otherwise take, making the financial system less, not more, stable.
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