Humph. This seems like a first. One top Federal Reserve official encouraged policymakers to ensure it does not bail out financial industry creditors and to let them fail in order to restore market discipline.
Jeffrey Lacker, president of the Richmond Federal Reserve Bank, delivered prepared remarks at the Louisiana State University Graduate School of Banking on Monday, in which he iterated what regulators need to do so the financial industry remains secure, according to CNBC.
One measure, says Lacker, is to end the entire premise of “too big to fail” so that “creditors have an incentive to avoid fragile funding arrangements.”
Despite these comments, Lacker believes fewer regulators are what is needed to make the system safer. He cited the Fed’s emergency lending powers and Title II of the 2010 Dodd-Frank Wall Street Reform Act, also known as the Orderly Liquidation Authority, as causes for concern.
Lacker urged Congress to repeal the Dodd-Frank legislation because it permits the Federal Deposit Insurance Corp. (FDIC) to utilize U.S. Treasury credit line throughout the liquidation of a financial institution.
The Fed official’s remarks come as there is heightened debate regarding the stability of the U.S. economy and whether or not the central bank will begin to raise interest rates in the fall.
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