Fischer Says Banking System May Need ‘Restructuring’
Bank of Israel Governor Stanley Fischer, a former vice chairman of Citigroup Inc., said the global banking system may require “radical restructuring” to avoid future financial crises.
“We seem to be taking it for granted that we should go back to the structure of the financial system as it was on the eve of the crisis,” Fischer said in remarks prepared for a speech today at an annual symposium sponsored by the Federal Reserve Bank of Kansas City in Jackson Hole, Wyoming. “But we need to be thinking more broadly, including the possibility that some radical restructuring is needed.”
Fischer and his fellow policy makers are debating how to strengthen regulation and revamp monetary policy following $1.6 trillion in losses and writedowns from the worst global credit crisis since the Great Depression. Fischer said policy makers should consider stopping banks from growing too large.
After banks collapsed from the U.S. to Iceland, “it seems clear that countries should seek to limit the size of individual financial institutions relative to the size of the economy,” Fischer said. “Even for the largest economies, there is a case for discouraging financial institutions from growing excessively.”
While large commercial banks provide certain benefits, Fischer said there are limits to growth that have may have been ignored in the past. Regulators have the option of reining in the banks by restricting proprietary trading, he said.
Echoes Bernanke
Fischer, also a former first deputy managing director of the International Monetary Fund, echoed today’s comment from Federal Reserve Chairman Ben S free credit report without a credit card. Bernanke that the global economy is beginning to emerge from recession.
“Growth does appear to be beginning to resume,” Fischer said. “Much remains to be done, not least in bringing banking systems back to health, and there are good — though not conclusive — reasons to fear a sub-standard recovery.”
In suggesting ways to avert another crisis, Fischer said that banks should be forced to put aside more capital and central banks should be given power to monitor financial systems and gauge the risk they pose to economies.
Pursing flexible inflation targeting while trying to deliver financial stability aren’t necessarily conflicting goals, he added.
Policy makers may not create the necessary regulations, he said. “We may be relaxing too soon, thinking the crisis is past when that is far from sure.”
“We need also to remember that every financial crisis is different, each in its own way, and that in seeking to prevent future crisis we need to seek out and deal not only with the factors that caused the present crisis, but also with those that could cause the crises of the future,” he said.
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