US Economy: Temporary fiscal cliff fix only postpones clarity

Richard Fisher, President of the Federal Reserve Bank of Dallas, tells DW why he still believes in a unified Europe and why a temporary fix of the fiscal cliff problem in the US isn’t good enough.

DW: Your remark that so called Too-big-to Fail banks should be broken up isn't very popular in financial circles. Do you really believe that this can be put into practice?

Richard Fisher: I do. And I am referencing in particular the financial situation in the United States. We have five institutions that have become even more concentrated in their power than they were before the crisis. And the intention of the legislation we passed, called the Dodd-Frank Act (law on Wall Street reform -the ed.), was to end "too big to fail". Instead the consequence has ensued: the largest banks have become even bigger - "too bigger to fail."

We have as you have in Europe over 6,000 banks, but we have excessive concentration in the hands of a few. It's the least worst outcome to say break up the banks. We provide a taxpayer guarantee on deposits. But starting with a very clever man named Sandy Weill at Citicorp, who took that franchise and was able to expand it through the acquisition of Travelers Insurance and so on, basically transformed it into what banks have become now which is an income-oriented and not a balance sheet oriented institution. That means how do I make as much as possible, taking advantage of the cheap money that was made available subsidized by the American taxpayer deposits.

But what I argue is: The only guarantees that exist are those of deposits. Any other activity beyond what we used to consider the commercial banking functions - safeguarding deposits by the American taxpayers that are at risk - will not be assisted by the government. I think by just making that clear alone we'll assist the process.

For the complete interview click here: Temporary fiscal cliff fix only postpones clarity | Transatlantic Voices | DW.DE | 29.11.2012