(title per ZeroHedge)
When Neel Kashkari, a former Goldman Sachs banker who helped administer the U.S. Treasury Department’s bailout program during the 2008 financial crisis, was appointed as President of the Minneapolis Federal Reserve Bank, I commented on his intent to break up the big Wall Street banks as either too good to be true, or a political smokescreen.
Mr. Kashkari had made addressing the “too big to fail” his signature issue. And, it looks as if he is holding true to his promise.
It’s also gratifying to see a Federal Reserve official voice some of the same ideas that my Bank Whistleblowers United colleagues have voiced. BWU has also called for increased capital as one action item needed to avoid another financial crisis.
In a recent speech to the Economic Club of New York , Mr. Kashkari unveiled a plan to end the systematic risk posed by U.S. banks by forcing them to hold a massive amount of capital, as much as 38%.
Labeled the Minneapolis Plan, Mr. Kashkari said, “We believe the Minneapolis Plan does a much better job of reducing risks at reasonable costs to society than current regulations”… “Ultimately, the public needs to make their own determination.”
“We expect that institutions whose size doesn’t meaningfully benefit their customers will be forced to break themselves up,” the Minneapolis Fed said in a summary of its plan. The plan may be a tough sell, receiving backlash from Wall Street as well as policy makers and bankers who believe they have “already imposed rules intended to eliminate the notion that some banks are too big to fail.” Yet, with President-Elect Trump’s criticism of Wall Street, and his potential support for dismantling of the 2010 financial crisis legislation known as Dodd-Frank, Mr. Kashkari ‘s plan may get consideration.
Under the “Minneapolis Plan,” there would be “fewer mega banks,” community banks would thrive, and mid-sized banks would make up larger share of system. The plan, which will naturally be ignored by the banks themselves and the authorities, is a culmination of efforts since February that brought together experts on financial crises and bank regulation, such as former Fed Chairman Ben Bernanke and ex-central bankers Roger Ferguson and Randall Kroszner according to Bloomberg.
The plan’s four proposed steps are the following:
Step 1. Dramatically increase common equity capital, substantially reducing the chance of bailouts.
Step 2: Call on the U.S. Treasury Secretary to certify that covered banks are no longer systemically important, or else subject those banks to extraordinary increases in capital requirements, leading many to fundamentally restructure themselves.
Step 3. Prevent future TBTF problems in the shadow financial sector through a shadow banking tax on leverage.
Step 4. Reduce unnecessary regulatory burden on community banks.
(The full speech can be found here, while you can access the full 53-page plan here.)
Ultimately, the goal of Minneapolis Plan is to “educate public and elected representatives about options. In his speech, Mr. Kashkari said, “while significant progress has been made to strengthen the U.S. financial system, the biggest banks continue to pose a significant, ongoing risk to our economy.“ He is adamant in his belief that Wall Street banks are still too big fail and intends to do something about the situation.
Mr. Kashkari attributes some of the political anger and polarization which characterized this last election to the anger some Americans had to bailing out the large banks at the same time they themselves lost their homes and jobs. And few can argue with that.
As Mr. Kashkari stated, “The bailouts violated a core belief that has been handed down from generation to generation in our society that if you take a risk you bear the rewards and consequences of that risk,” … “We had to tear that up during the crisis because the biggest banks were going to fail and bring down the U.S. economy. And when you violate the core beliefs of society, it does lead to anger and a feeling that this wasn’t fair.”
Hopefully this new administration will pay attention to these ideas and act accordingly. The American public deserves justice.
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Richard Bowen is widely known as the Citigroup whistleblower. As Business Chief Underwriter for Citigroup during the housing bubble financial crisis meltdown, he repeatedly warned Citi executive management and the board about fraudulent behavior within the organization. The company certified poor mortgages as quality mortgages and sold them to Fannie Mae, Freddie Mac and other investors.
