Speaking at a public event on Monday, former Federal Reserve Chairman Paul Volcker said that new financial regulations have not done enough to address the size of risk-taking banks, which could still bring the financial system to the brink of collapse.
He said some aspects of the Dodd-Frank Act — such as the Volcker rule and a provision that would wind down bankrupt banks — will make banks “less likely to get in trouble.” But he warned that financial regulators are “fighting against a presumption” that the government will save too-big-to-fail banks.
Volcker also said that, while it is possible to solve the too-big-to-fail problem, the United States needs to enlist the help of other countries, such as Great Britain and Japan, in regulating financial institutions more strictly because large banks now “are all big international institutions.”
The Dodd-Frank Act, which was signed into law last year in response to the financial crisis, aims to address too-big-to-fail by placing more banks under government oversight, regulating the trading of derivatives and outlining a path for the federal government to dissolve troubled banks.
Nonetheless, too-big-to-fail is a bigger problem now than it was before the recession. U.S. banks are larger than they were before the recession, and the number of too-big-to-fail banks is set to increase 40 percent over the next 15 years, according to Bloomberg News.
Volcker, who as Fed chairman helped drive down inflation during the early 1980s, also warned that inflation is not the answer to fixing the economy, as many other economists have argued. He said that inflation would not help the economy in a significant way, and once inflation more than doubled, any benefits would not be worth the economic costs of rapidly rising prices.
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Category: Business/ Economy
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