But while everyone is looking at the big dog, the rest of the pack has been out making very interesting noises. Indeed, if you pay attention to Federal Reserve speeches, you might notice a pattern: Specific themes seem to run throughout the commentary of different Federal Open Market Committee members. This is not an accident; there is broad institutional agreement at the Fed about specific ideas.
The one that I have been watching over the years has been the theme of ending “Too Big To Fail” (TBTF). What reminded me of this was a speech last week by New York Federal Reserve President William C. Dudley, titled Ending Too Big to Fail.
Ordinarily, one speech is not such a big deal. But it's not just one speech. Dudley gave a similarly themed discussion this time last year, Solving the Too Big to Fail Problem.
And its not just Dudley: Thomas C. Baxter Jr., General Counsel for the New York Fed, presented this over the summer at Columbia University Law School, titled Resolving the Unresolvable: The Alternative Pathways to Ending Too Big to Fail.
Its no surprise that the New York Fed, which oversees so many financial local entities, has this as a concern. But the same theme has appeared in dozens of speeches from various Federal Reserve Governors and Regional Federal Reserve Banks throughout the country. Fed Governor Jerome H. Powell’s gave a speech Ending "Too Big to Fail" this year that reflected a similar presentation by Fed Governor Daniel K. Tarullo in 2009, Confronting Too Big to Fail.
Its not just the New York Fed. Charles Plosser, president of the Federal Reserve Bank of Philadelphia, asked Can We End Too Big to Fail? At a conference at the Federal Reserve Bank of St. Louis, Harvey Rosenblum presented The Pathology of Too Big to Fail. And in 2012, the Federal Reserve Bank of Chicago held a conference looking at The Social Value of the Financial Sector: Too Big to Fail or Just Too Big?
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Perhaps most notable is Dallas Federal Reserve Bank President Richard W. Fisher’s remarks, Ending 'Too Big to Fail,' earlier this year. A conservative who dislikes government intervention in markets and despises bailouts, Fisher is concerned that TBTF will eventually require more of both. His full proposal was aptly titled Ending 'Too Big to Fail': A Proposal for Reform Before It's Too Late (With Reference to Patrick Henry, Complexity and Reality).
You don’t need to be an expert in pattern recognition to see that the Fed has a deep institutional interest in ending Too Big to Fail. When things collapse catastrophically, the Fed is the institution of last resort that is charged with cleaning up the mess.
This spring, I discussed how an unlikely pair of senators -- Sherrod Brown, an Ohio Democrat, and David Vitter, a Louisiana Republican -- had introduced a non-binding resolution calling for the end of the implicit subsidies that “too big to fail” (TBTF) banks enjoy. The Senate voted 99-0 in support of the measure. (Can two senators end ‘too big to fail’?)
With the Federal Reserve, regional Fed banks and the Senate all supporting ending TBTF, why has nothing been done on this front? Why hasn’t all of this jawboning from across the ideological spectrum resulted in legislation that tangibly reduces the risks posed by TBTF?
Perhaps we should be asking that of our Congress-critters . . .