CHATHAM, Mass. — Federal Reserve vice chairman Donald Kohn said yesterday that the government policy of considering some financial institutions “too big to fail” is a serious problem in need of solution, but it did not cause the financial crisis.
Kohn, making an unscheduled comment during a Boston Federal Reserve Bank conference, also expressed his discomfort with the major role the Fed has played in providing liquidity to financial institutions during the breakdown of inter-bank funding markets.
Meanwhile, Eric Rosengren, president of the Federal Reserve Bank of Boston, said at the conference that some government agency needs to be given a “mandate to focus on systemic risk” so that brewing financial problems can be identified earlier.
Rosengren also echoed calls for a resolution mechanism to unwind large financial firms that become insolvent, but said the Fed should not be involved in the resolution of individual institutions.
“It’s very important that someone does have that authority,” he said. “This crisis would have unfolded quite differently had resolution authority been in place.”
— Market News International