The Federal Reserve's new vice chair all but dismissed the idea of breaking up the largest U.S. banks, saying on Thursday it is unclear that such a complex task would help stabilize the country's financial system.
In his most detailed speech on financial regulation since becoming the Fed's No. 2 official, Stanley Fischer also floated the idea of adding a financial stability mandate to all of the U.S. regulators under the umbrella of the Financial Stability Oversight Council, a coordinating committee.
Addressing the problem of too-big-to-fail banks—those that benefit from the public assumption that the government will do whatever is needed to protect them in times of crisis—Fischer said the problem was not yet solved and that the Fed and other regulators must not become complacent.
But he said it is "not clear" that breaking up the largest banks would end the need for future government bailouts, pointing out that bankrupt investment bank Lehman Brothers was not a U.S. financial giant and arguing that the savings and loan crisis of the 1980s and '90s was due to small firms "behaving unwisely."
"In short, actively breaking up the largest banks would be a very complex task, with uncertain payoff," Fischer said in prepared remarks to the National Bureau of Economic Research.
Fischer, a widely respected economist with extensive policymaking experience, is expected to play an influential role in helping to shape U.S. monetary and regulatory policy, and could prove a powerful ally of Fed Chair Janet Yellen.