Federal Deposit Insurance Corporation vice-chairman Thomas Hoenig told Bloomberg Radio on Tuesday that a revival of the Glass-Steagall Act is "absolutely necessary" to protect the U.S. financial system. Hoenig's "absolutely necessary" quote and other comments have been covered all over the U.S.
Using Dodd-Frank Act powers to break up banks one-by-one is the wrong approach to removing the threat that risky trading could spark a repeat of the 2008 credit crisis, Hoenig told Kathleen Hays on "The Hays Advantage" show on Bloomberg: "It's picking winners and losers based on what they present to you, and I think it is fraught with problems," Hoenig said. Hoenig retired as President of the Federal Reserve Bank of Kansas City after 20 years, before joining the FDIC in April.
"If we don't make these changes, I think we're destined to repeat the mistakes of the past," Hoenig said. "When you mix commercial banking and high-risk broker-dealer activities, you increase the risk overall, and as a result, you invite new problems."
Dodd-Frank, passed by Congress as a response to the panic of 2008, gives regulators the power to force banks to restructure if the banks can't demonstrate how they could be unwound in the event of a collapse. However, Hoenig said the government should go further, reinstituting the separation that ended when Glass-Steagall was repealed in 1999. Continuing consolidation of the biggest banks is "a long-term structural issue for banking in the United States" as companies get so big that the government can't afford to let them fail, Hoenig said. Congress "is going to have to" restore something like Glass-Steagall in order to avert another catastrophe, he said.
In the same interview, Hoenig called for Jamie Dimon of JPMorgan Chase to resign from the New York Federal Reserve Bank Board.
Hoenig's comments were covered in the Kansas City Star, San Francisco Chronicle, businessweek.com; bloomberg.com; www.moneynews.com; ritholtz.com; investmentwatch.com; mortgage-help-foreclosure.com; bankcreditnews.com, and many more.