Fed’s Kashkari Unveils Plan to Prevent Government Bailouts

Minneapolis Federal Reserve President Neel Kashkari unveiled a plan on Wednesday to prevent future government bailouts by forcing the largest U.S. banks to hold so much capital that they would probably decide to break themselves up.

Kashkari’s plan would also penalize large asset managers, with the idea that so-called “shadow banks” can create systemic risks similar to that of big banks.

“We expect that institutions whose size doesn’t meaningfully benefit their customers will be forced to break themselves up,” the Minneapolis Fed said in a summary of its plan.

The plan, which would double the amount of loss-absorbing equity capital for large U.S. banks and impose a new tax on hedge funds and other asset managers, is sure to face fierce opposition from Wall Street.

It may also be a tough sell for policymakers who have already imposed rules intended to eliminate the notion that some banks are “too big to fail,” or TBTF.

However, its prospects may be better under the administration of President-elect Donald Trump and the new Congress.

Trump has been critical of Wall Street, and indicated he would support dismantling 2010 financial crisis legislation known as Dodd-Frank, but it is not clear whether he would support Kashkari’s approach.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza