US Federal Reserve governor Daniel Tarullo has said that “too big to fail is not a binary status” and that systemic risks need to be tackled. However, he dismissed the suggestion that banks’ investment and commercial operations should be separated.
Speaking on Politico Morning Money said a lot is being done to tackle systemic risk, including ensuring banks hold “substantially more and better capital” than they did before the financial crisis. Although there are costs and he welcomes the arguments from banks, the benefits of stricter capital requirements outweigh the risks. He added that short term market funding continues to be a risk to the financial system, suggesting that wholesale funding ratios could be tied to capital requirements.
He expressed some scepticism over efforts to enact a law similar to the Glass-Steagall Act separating investment and commercial banking, saying that while there are benefits, he would be concerned about unintended consequences.