Pol­i­tics noth­ing to do with curb­ing big banks: Kashkari

The Pak Banker - - COMPANIES/BOSS -

The new­est Fed­eral Re­serve pol­i­cy­maker dis­missed con­cerns that his call for rad­i­cal ac­tion to rein in "too big to fail" banks was a par­ti­san move, and in­stead said to­day it high­lighted the U.S. cen­tral bank's in­de­pen­dence from pol­i­tics. Min­neapo­lis Fed Pres­i­dent Neel Kashkari, a Repub­li­can and for­mer Trea­sury of­fi­cial un­der the Bush and Obama ad­min­is­tra­tions, said on Tues­day ex­ist­ing rules to pro­tect tax­pay­ers and the econ­omy from a bank fail­ure fall short, and he urged Congress to con­sider break­ing up mas­sive banks.

The call for ac­tion seven years af­ter the worst of the fi­nan­cial cri­sis touched a nerve among bankers and on the com­bat­ive pres­i­den­tial elec­tion cam­paign, where both Democrats and Repub­li­cans have ham­mered Wall Street greed and crit­i­cized reg­u­la­tions as hav­ing fallen short.

"I don't see this as a par­ti­san is­sue," Kashkari said in an in­ter­view on Wed­nes­day in which his views on mon­e­tary pol­icy were far more muted.

"I do think there are peo­ple on both sides of the aisle who care about this is­sue and think we should take stronger ac­tion," he told Reuters. "It wasn't a political state­ment. It was a state­ment about eco­nomic risks."

Kashkari, a can­di­date for Cal­i­for­nia gov­er­nor in 2014 who last month be­gan the Min­neapo­lis job, ac­knowl­edged he had not con­sulted broadly with law­mak­ers or with his col­leagues at the Fed, ar­gu­ing it was ap­pro­pri­ate to go pub­lic with his views be­fore get­ting feed­back, to which he "looked for­ward."

Chair Janet Yellen and oth­ers at the cen­tral bank have backed the so-called Dodd-Frank re­form leg­is­la­tion, adopted in 2010, as hav­ing gone a long way to pro­tect the econ­omy from an­other fi­nan­cial cri­sis re­quir­ing a pub­lic bailout.

Bernie San­ders, a Demo­cratic sen­a­tor and pres­i­den­tial can­di­date who has tapped into anger to­ward Wall Street, said on Tues­day he was "de­lighted" with Kashkari's stance. Asked about this on Wed­nes­day, Kashkari said: "I've never met Sen­a­tor San­ders and I don't know him and I've never spo­ken to him. This is not about pol­i­tics."

Be­sides Wall Street, the Fed it­self has been crit­i­cized by San­ders and oth­ers run­ning for pres­i­dent for its per­ceived pol­icy se­crecy and too-cozy re­la­tion­ship with banks.

"If we can demon­strate to the Amer­i­can peo­ple that there is a di­ver­sity of views within the (Fed) and peo­ple are out­spo­ken, what bet­ter way to demon­strate that we are not political or be­holden to the (White House) or any political party," Kashkari said. "I think this shows more in­de­pen­dence." Kashkari was a Gold­man Sachs banker be­fore he man­aged part of the bank­ing and auto bailouts for Trea­sury dur­ing the 2007-2009 cri­sis. His var­ied past and pop­ulist turns of phrase drew strong re­ac­tion to what he told Reuters was his "sig­na­ture is­sue early on" in his Fed ten­ure.

A bank­ing trade group, the Fi­nan­cial Ser­vices Fo­rum, said the Fed's own stress tests show the largest banks can now sur­vive a "far worse" cri­sis than the last, and warned that break­ing them up would ben­e­fit for­eign com­peti­tors.

"I think that they are sur­prised and I ex­pect them to push back pretty hard," Kashkari said of bankers. Kashkari pub­licly raised con­cerns about bank vul­ner­a­bil­i­ties as far back as 2011. But he said it was only since Novem­ber, when he was named to the Min­neapo­lis Fed job, that he hud­dled with its in­ter­nal ex­perts in­clud­ing pol­icy ad­vi­sor and au­thor Ron Feld­man and de­cided to pro­pose pos­si­bly break­ing up the banks.

The Min­neapo­lis Fed di­rec­tors who se­lected him for the job last year were not aware he would cham­pion the is­sue, "and nei­ther was I," he said. Kashkari was less spe­cific on the ques­tion of in­ter­est rates, say­ing mar­kets should fo­cus less on the views of in­di­vid­ual Fed of­fi­cials and more on the cen­tral bank's pol­icy-mak­ing com­mit­tee.

He backed the com­mit­tee's ex­pec­ta­tion of "grad­ual" rate hikes and 2 per­cent in­fla­tion over "the medium term," adding he was con­cerned about low in­fla­tion in most ma­jor economies.

"I'm not shy about ex­press­ing my opin­ions," he said. "But I also think that hav­ing chat­ter for the sake of hav­ing chat­ter is not nec­es­sar­ily a good thing."

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