Architect of 2008 bailout says US banks still pose 'nuclear' threat to economy

theguardian.com

America’s biggest banks present a “nuclear” threat to the US economy and should be broken up, a Federal Reserve policymaker and architect of the 2008 banking bailout said Tuesday.

Neel Kashkari, the head of the Minneapolis Federal Reserve, said the US’s biggest banks were still “too big too fail” and Congress should consider “bold transformational solutions to solve this problem once and for all”.

“I believe the biggest banks are still too big to fail and continue to pose a significant, ongoing risk to our economy,” Kashkari said in his first public speechsince becoming a Fed policymaker in January. “A very crude analogy is that of a nuclear reactor. The cost to society of letting a reactor melt down is astronomical. Given that cost, governments will do whatever they can to stabilize the reactor before they lose control.”

Kashkari, who is best known for organising the $700bn government-funded bank bailout in 2008, said “serious consideration” should be given to “breaking up large banks into smaller, less connected, less important entities”. Another solution, he said, was to turn the big banks into public utilities by “forcing them to hold so much capital that they virtually can’t fail”.