Efforts should focus on stemming negative spillover effects from failure of key financial institutions, according to Federal Reserve Bank of Minneapolis president Gary Stern.

“Maintaining the status quo with regard to [too big to fail] could well impose large costs on the U.S. economy. We cannot afford such costs,” Stern told the Senate Banking, Housing, and Urban Affairs Committee yesterday, according to prepared text released by the Fed. “I encourage you to focus on proposals that address the underlying reason for protection of creditors of TBTF financial institutions, which is concern for financial spillovers. I have offered examples of such reforms. Absent these or similar reforms, I am skeptical that we will make significant progress against TBTF.”

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