Why Bernie Sanders Is Wrong About Big Banks

These questions originally appeared on Quora - the knowledge sharing network where compelling questions are answered by people with unique insights.

Answers by John Williams, President and CEO of the Federal Reserve Bank of San Francisco, on Quora.

Q: Is the US banking system safer and more stable than before 2008?

A: Yes. Banks are required to have much more capital and liquidity than before. This means they have a lot more reserves on hand if they take losses on loans or investments, without having to cut back on lending or be at risk of bankruptcy. In addition, banks are required to undergo annual stress tests to make sure that they can survive a severe economic downturn. Finally, other major non banks are now regulated for safety and soundness.

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Q: Is Bernie Sanders right that we need to break up the big banks?

A: I don't want to get into politics, but simply breaking up the largest banks doesn't really address the causes of the financial crisis. After all, the failure of medium-size banks and so-called shadow banks, such as Bear Stearns and Lehman Brothers, were at the center of crisis. The regulatory approach instituted after the crisis addresses risks throughout the financial system, rather than just focusing on a few banks.

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Q: How can technology disrupt banking industry?

A: There are a lot of new ideas to provide financial services easier and cheaper to customers, often called "fintech" for "financial technology." Banks and non-bank start-ups are vying to come up with new apps and other services that customers want. Although the future is hard to predict, my guess is that fintech won't end up replacing all the banks, but banks will have to adapt to new technologies in order to compete.

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