Current efforts may not be enough to solve the too big to fail problem, and Federal Reserve Bank of Philadelphia President Charles I. Plosser said the government shouldn't bail out failing firms and rules and capital requirements need to be set to attempt to reduce the risk of failures.
"The first aspect of this approach is establishing a framework that permits a large financial institution to, in fact, fail without placing the financial system at risk. Large financial firms, and particularly their creditors, should not be rescued or protected by government guarantees or supports or by regulatory discretion," Plosser told the 4th Annual Simon New York City Conference, according to prepared text released by the Fed. "The second line of defense that I will discuss is to expect all financial firms to maintain sufficient levels of capital to significantly reduce the ex-ante risk of failure. Increased capital requirements can lower the incentive for financial institutions to become systemically important and lower the probability that such firms will fail in the first place."