Kansas City Federal Reserve Bank president Thomas Hoenig yesterday told Congress that government actions to rescue financial institutions deemed “too big to fail” are causing uncertainty, hurting financial market confidence, and impeding economic recovery.
Hoenig, in prepared testimony before the Joint Economic Committee, suggested that the expenditure of hundreds of billions of dollars since the financial crisis intensified last September has largely been a flop.
The former senior bank supervisor said more fundamental choices need to be made. Nonviable banks need to be allowed to fail, and in the future, regulations need to focus more on strict capital requirements, he said.
Hoenig also took issue with those who suggest that the Federal Reserve system, with its 12 regional Fed banks, needs to be revamped.
The Kansas City Fed president, who has become increasingly vocal about causes and solutions to the financial crisis in recent weeks, traced the crisis to the “too big to fail” doctrine — the idea that the federal government must protect some firms from insolvency and bankruptcy.
— Market News International
