WHEN: Today, Wednesday, February 17th
WHERE: CNBC's "Squawk Box"
Following are excerpts from the unofficial transcript of a FIRST ON CNBC interview with Federal Reserve Bank of Minneapolis President Neel Kashkari on CNBC's "Squawk Box" (M-F, 6AM-9AM ET) today, Wednesday, February 17th. Following are links to the videos on CNBC.com: http://video.cnbc.com/gallery/?video=3000494599, http://video.cnbc.com/gallery/?video=3000494600 and http://video.cnbc.com/gallery/?video=3000494602.
All references must be sourced to CNBC.
KASHKARI ON SMALL BANKS
I think that community banks and small banks are being caught in the umbrella of what we are trying to do to stabilize the biggest banks. So in my view, if we actually took transformational action to stabilize the biggest banks, make sure they are secure, maybe we can relieve some of the regulations on some of the smaller banks that weren't part of this.
KASHKARI ON BAILING OUT BANKS
I want to be honest with the American people. That yes, progress has been made, but if we have a stressed economic environment and multiple banks are in trouble at the same time, the government is going to have to step in and bail them out. And I don't think that's an answer that people are going to find acceptable. And so now is the time to consider more transformational solutions – break-up the banks is one of them – some experts have advocated turning them into utilities by putting so much capital in them that they can't fail, or taxing leverage across the financial system.
KASHKARI ON FOLLOWING THE RULES
There are economies of scale and scope with banks, but there are also costs of having these giant banks. And if we were to restructure our financial system, I believe small and mid-sized banks would grow to fill some of that void. Look, if other countries want to take huge risks with their financial systems, we can't stop them. But we should do what's right in our country – create one set of rules and every bank that operates in America needs to follow those rules.
KASHKARI ON CHINA
None of us has perfect information into the Chinese government – and their financial system. But from what I know of the Chinese system, they have enough capital to stand behind their banking system. But again, it leads to great cost to their society; it leads to great market upheaval and one of the transmission mechanisms from China to the U.S. are obviously risk premiums, obviously volatility in the markets. Even If our trade linkages may be moderate, if risk premiums go up all around the world, that could have an effect on our economy too.
KASHKARI ON STEPPING FORWARD
If I didn't step forward or my colleagues in Minneapolis did not step forward and say we have a problem, and we're going to have to take some responsibility and try and do something about it, who's going to do it? Who's going to step forward?
KASHKARI ON BOND MANAGERS
I don't find that compelling. I think the big bond managers like PIMCO and Blackrock and others, if they want to trade with each other, they can find a way to trade with each other. I just don't find it compelling.
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