‘Too-big-to-fail banks’ the most critical issue facing financial system, says Fed official

Updated: Wednesday February 12, 2014 MYT 10:54:12 AM

‘Too-big-to-fail banks’ the most critical issue facing financial system, says Fed official

PALO ALTO, California: Calling too-big-to-fail banks “the most critical issue facing our financial system,” a top Federal Reserve official on Tuesday urged new laws to address the problem, including ending Fed emergency lending powers.

“During the crisis, and still today, many people view government-provided backstops to large financial firms as a necessity to prevent financial system malfunctions,”Richmond Federal Reserve President Jeffrey Lacker said in remarks prepared for delivery to the Stanford Institute for Economic Policy Research.
But so long as those backstops are seen as available, he argued, investors will continue to take risks they would not otherwise take, making the financial system less, not more, stable.
Although Wall Street reform legislation went some way toward preventing new bailouts, Lacker said, more legislation would be “useful,” including revamping the bankruptcy code to limit exemptions and rewriting rules that now prevent money market funds from suspending redemptions under stressed conditions.
“Credible commitment to orderly unassisted resolutions thus may require eliminating the government’s ability to provide ad hoc rescues,” Lacker argued. “This would mean repealing the Federal Reserve’s remaining emergency lending powers.”

The Fed’s role as “lender of last resort” should not extend to bailing out insolvent, large institutions whose failure is seen as a threat to broader financial stability, he said. And during the crisis, he argued, the Fed ended up acting as a backstop to private entities that otherwise could not have gotten the financing they wanted – Reuters.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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