WASHINGTON — Dallas Federal Reserve Bank President Richard Fisher Wednesday night took aim at large so-called systemically important financial institutions, warning of a rising tide within the Fed in favor of dealing with an issue that he blames for the less-than-satisfactory results from Fed efforts to boost the economy.

Fisher also said there is a growing appeal on tackling the issue of too-big-fail banks and what some believe is the unfair advantage conferred by their preferred status, but that any concrete action will require action by lawmakers.

"You can't run an effective monetary policy unless you have an effective transmission mechanism, and we don't" Fisher told reporters following a speech to the Committee for the Republic.

"It's sluggish ... the engine is not clean," he added, even though the Fed has been "expanding its balance sheet like crazy."

In particular, Fisher noted his disappointment with the impact from the Fed's massive mortgage-backed securities purchases.

"The mortgage market has not moved after all the purchases we've made to drive down mortgage-backed securities prices," he said. "We have not seen as robust an effect as we'd like to see."

Rates are at record lows, he acknowledged, but they have not come down quickly enough as the Dallas Fed chief would want.

"And I think therefore our policy hasn't been as effective as we would like it to be," he said.

The Fed is currently buying $45 billion a month in longer-term Treasury bonds and $40 billion a month in MBS, and Fisher said he believes quantitative easing "is increasingly having a lesser impact as we go through time."

He stressed that he is not alone within the Fed in thinking this way, citing members of the the Fed Board and as well as regional bank presidents.

"I would say there is a tide that's rising," Fisher declared.

Asked by MNI how much traction his proposals to tackle the issue of too-big-to fail is having within the Fed and on Capitol Hill, Fisher said there has been "an enormous amount of support" from all corners.

"I have been called - unsolicited - by several members of the Senate on both sides of the aisle, and by several members of the House," he said. "I think this appeals to Democrats as well as Republicans."

The continuing problem of too-big-to fail "is part of the problem of why we haven't recovered as quickly as possible," Fisher said.

The attention of these behemoth banks is focused elsewhere and not on making loans, he said, which is interfering with monetary policy as a result.

Dealing with too-big-to fail banks is a "political issue," and Fisher stressed the need to get lawmakers on Capitol Hill to focus on the issue.

Within the U.S. financial system, Fisher argued that it is in the interest of community banks to no longer be placed at a disadvantage via-a-vis their systemically important counterparts, and there is considerable political muscle that can be exercised by community banks if they were galvanized to push for action.

"I think its appealing," he said. "I do see an outpouring of support for this effort."

In the end, Fisher said his goal to prevent is placing the American taxpayer at risk, saying the public should not be open to unlimited liability from the bad decisions made by large financial institutions.

"Ours is an effort at simplicity, fairness," he said.

Market News International is a real-time global news service for fixed-income and foreign exchange market professionals. See www.marketnews.com.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.