Neel Kashkari

Neel Kashkari, now the president of the Federal Reserve Bank of Minneapolis, speaks in Sacramento on July 21, 2014, during his campaign for California governor. (Steve Yeater / Associated Press)

Jim Puzzanghera
February 16, 2016

A top Federal Reserve official who administered the 2008 bank bailout fund suggested Tuesday that Congress consider breaking up the largest financial firms or treating them like public utilities to prevent their failures.

Neel Kashkari, the former Treasury official who was the 2014 Republican nominee for California governor, announced that he was launching an initiative in his new role as president of the Federal Reserve Bank of Minneapolis to develop tougher regulations to solve the problem of banks considered too big to fail.

While the 2010 Dodd-Frank financial reform law has made “significant progress” in strengthening the financial system, it did not go far enough, he said.

“I believe the biggest banks are still too big to fail and continue to pose a significant, ongoing risk to our economy,” Kashkari said in a speech to the Brookings Institution think tank.

“Now is the right time for Congress to consider going further than Dodd-Frank with bold, transformational solutions to solve this problem once and for all,” he said.

Among the options that should be given “serious consideration” are “breaking up large banks into smaller, less connected, less important entities” and “turning large banks into public utilities by forcing them to hold so much capital that they virtually can’t fail,” he said.

“The financial sector has lobbied hard to preserve its current structure and thrown up endless objections to fundamental change,” said Kashkari, who is a former executive at Goldman Sachs Inc.

“And in the immediate aftermath of the crisis, when the Dodd-Frank Act was passed, the economic outlook was perhaps too uncertain to take truly bold action,” he said. “But the economy is stronger now, and the time has come to move past parochial interests and solve this problem. The risks of not doing so are just too great.”

The high-profile initiative is unusual for a regional Fed president, particularly one who just took office Jan. 1. But Kashkari has more government and political background experience than the typical holder of such a position.

He was a senior advisor to Bush administration Treasury Secretary Henry M. Paulson when the financial system was on the brink of meltdown in the fall of 2008. Paulson tapped Kashkari to run the $700-billion bank bailout initiative known as the Troubled Asset Relief Program.

To read expanded article, click here.