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Federal Reserve Bank of Dallas president and CEO Richard Fisher on why banks are essentially exempt from going bankrupt.
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Million.
As we await the results of the bank stress test throughout any minute some folks say that the -- miss the main point that.
Even a big banks fail stress tests they can't fail in the marketplace like other businesses do even after the so called reforms of Dodd-Frank.
One of the strongest most respected voices trying to bring big banks back into the free market is our next guest who joins us -- Fox Business exclusive the CEO and president.
Of the Federal Reserve Bank of Dallas.
One of the best gentleman in the United States of America Richard -- good to see you Richard thanks for coming in again.
My my wife would monopoly would you December thank you day after.
-- let's talk about the stress tests which are coming out any minute.
-- some people say they really do miss the bigger point that big banks are still essentially exempt.
From going bankrupt isn't that the bigger problem here.
Well -- separated to the stress tests are very important to make sure that what we now have.
That is the banks have now operate under the current law etc.
I can withstand adverse economic circumstances I think that's very very important I think.
It's -- there well administered under the oversight of one of the Federal Reserve governors -- Ventrilo.
And that's very necessary under the current structure.
What I am my colleagues at the Dallas fed have advocated however is its.
Changing the rules that really deal with banks are too big to fail.
Because Dodd-Frank.
Its preamble and its purpose is to deal with too big to fail we don't believe it solves the problem we have about a dozen banks.
Let me Hillary is starting -- -- -- Richard because I think it's an important what you said that point.
That even though the preamble of of Dodd-Frank says it's all about too big to fail it fails to deal -- too big to fail.
It -- the too big to fill out some pretty good term.
And we we have if you take the top dozen banks for example in the United States and you might consider too big to fail.
They're operating -- funding cost of funding advantage and other advantages.
Then the 5500.
Community banks in this country and -- seven -- so regional banks.
Because we have seen as a governor just said his honor you learn from experience.
From experience civil.
Given the last cycle these institutions.
Will not be allowed to fail the law has changed it's supposed to make sure that they can fill.
That in effect does not David and therefore they implicitly.
Or receiving a subsidy and lower costs of funds.
It the that we don't have a level playing field for banks in the United States and what we seek to do to Dallas fed.
Is to make sure we have a level playing field so that we have free and open competition otherwise we're gonna up with more more concentration.
Right now we have a handful of banks that have 70% of all the banking assets in America.
It's just a matter is that it's more -- we have before that's more than we have before the crisis so.
Dodd-Frank -- not solve the problem it's created enormous bureaucratic structures its hyper complex.
And our solution is very simple very straight forward and we believe will deal with the issue of too big to fail.
All right very quickly we want to switch over now to the Federal Reserve policy monetary policy essentially you mentioned how dallas' sometimes and out liar.
With some of the other fed banks around the country -- -- -- -- -- pointed that out in his conversation with Ben Bernanke last week let's just play a little.
Sound bite from that.
Sure Richard Fisher president of the Dallas fed quote I will be asking myself what good would it do to buy more mortgage backed securities.
Or more treasuries when we have so much money sitting on the sidelines.
Oh your name was was mentioned by -- had her -- Ben Bernanke did say that you guys had a disagreement on whether to taper off the money -- -- it's going on and you have said in fact he said last week personally.
I would begin tapering the purchase of treasuries I would like to start now.
I just don't think that the benefits are worth the cost what is the cost of this money pretty we've seen.
Well there -- several.
Potential -- right now the costs as we are building our balance sheet.
We've gone from 890 billion to a little over three trillion of the Fed.
We have a lot of money sitting on the sidelines lot of excess reserves on deposit at twelve Federal Reserve banks over a 1000000000600 billion.
The issue for me is how do we get out of this huge expansion of our balance sheet.
And what will be the risk that we run in doing so as interest rates come up.
As the economy improves economy's improving gradually David that is moving forward.
And and secondly very very importantly here I talked about tapering off.
The 45 billion a months and then the roll -- for getting on our mortgage backed security portfolio.
The housing market is getting to be quite strong.
And it's quite possible in my view -- as -- my personal opinion.
That a little tapering there would actually make people realize that we've bottomed out intercept cycle it's been very helpful to get the housing market moving.
I think it actually more active in -- are currently seeing.
Not just in very strong states like we have here but in most states now the housing market is definitely rising prices are rising.
The inventories getting tighter.
I think the Federal Reserve is done a good job regain that market off the bottom.
And now I think more natural forces should flow I'm not talk about cutting off the purchase just -- bring -- down so we have less accommodation we have now.
Now that the biggest problem is this disconnect for a lot of us anyway that they receive between this stock market rally which is great and we can all benefit from and her 401 -- everything.
But between that and the economy itself which everybody agrees is not growing as it should we still have high unemployment.
The difference between main street and Wall Street is main street paying a price.
For these very low interest rates that Wall Street loves.
Well we've talked about -- a bit you know I've.
Acknowledge one of the cost suspended -- -- -- play by the rules say their money particularly baby boomers as they go more into fixed income shorter term.
Exposure.
And they're getting less returns -- the the big -- on Wall Street.
Have benefited from a rising stock market -- using the most sophisticated biggest players again and their first.
It has been a deliberate effort -- the Fed by keeping interest rates low you change to discount factor that's assigned to stocks.
And this stock market -- as -- and outcome of our policies and actually.
A deliberate outcome because we wanted to have the majority -- committee especially but all of us a wealth of fact.
They would then impact consumer just started our because it's so how well -- -- -- some people do see that in conflict with one of the mandates which of of the Federal Reserve which is to keep.
Unemployment down sometimes stocks go up.
When they fire people isn't that in direct contradiction to another fed mandate while that it -- ended that that's the fundamental side of things people have driven productivity corporations are driving their efficiency much greater with lesser workers but.
The theory is that the wealth effect that is when people feel more comfortable airport -- doing better.
They're gonna consume more greater consumption leads to greater production and greater production requires greater employment.
So there is a Lincoln served.
I've argued actually I think the wealth effect has been more cost straight in -- hands.
We're beginning to see the smaller investor -- and a mutual funds and so on them flows are pretty heavy.
And I'm not sure you know at some point that might end in tears but right now things are moving in the right direction from the standpoint okay of that practice -- -- -- -- -- I I.
Promised you an unfortunate habit it's gonna have to be our next appearance because we have those stress -- just came out you have something called Texas century bonds -- financial instrument that you have.
Plan that your the architect -- we wanna talk about that back with you will start by talking about that -- -- but we just got these --
