Federal Reserve Bank of Kansas City president Thomas Hoenig said Monday that ending affiliations between primary dealers and commercial banks and limiting access to the federal safety net need not hurt the conduct of monetary policy — provided the Fed revived the expired term-auction facility.

“By broadening the Federal Reserve’s monetary tools to include the TAF to provide term funds through the banking system in parallel with the primary dealers, we could greatly expand the number of counterparties used in the conduct of monetary policy,” he said.

Hoenig also urged reforms to the “shadow banking system,” including changes in the bankruptcy law to discourage the use of mortgage-related collateral for repo financing.

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