Friday, October 7, 2011

Atlanta Fed’s Lockhart Says Regulators Must Work Further to End Bailouts

 Federal Reserve Bank of Atlanta President Dennis Lockhart said regulators haven’t yet put in place a system that would allow orderly failures of the largest financial firms without taxpayer rescues.

“ The system we should work toward is one in which no institution is too big to fail,” Lockhart said today in a speech in Atlanta. “Much is being done in the aftermath of the Fed’s and the Treasury’s emergency interventions of 2008 to get to this state of affairs, but, in my view, this is a longer-term aspiration at this moment.”

The Fed and other banking regulators are working to avoid more taxpayer-funded bailouts following the rescues of insurer American International Group Inc. and Citigroup Inc., which stoked public anger against the central bank and Congress. The Dodd-Frank Act passed last year mandated the Fed to monitor emerging risks to financial stability in the wake of the U.S. recession that ended two years ago.

Lockhart said regulators must raise required levels of capital to protect against failure of the biggest banks.

“Maintaining this buffer is especially important for the larger, systemically-important institutions for which government intervention in a crisis might otherwise be the only response to a threat to the entire system,” Lockhart said in the text of remarks at a panel discussion at Emory University’s Goizueta Business School. “We absolutely must get to a state in which private shareholders and creditors bear the risks of failure, not taxpayers.”

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