Former FDIC chair: How banks can become safer

Sheila Bair on 'too big too fail'

While calls to break up the big banks have grown, proponents should put their weight behind already proposed rules to make the banking system safer, former FDIC Chair Sheila Bair contended Monday.

Neel Kashkari became president of the Federal Reserve Bank of Minneapolis this year, quickly using his platform to call for banking giants to break up. Sen. Bernie Sanders of Vermont has also made splitting the companies apart a cornerstone of his Democratic presidential campaign.

In the wake of the global financial crisis, the banks' "too big to fail" status is a problem, Bair said. Some proposals already on the table could stabilize the financial system, she argued.

"Ending 'too big to fail' is a good sound bite, but there are some actions we can take," she said on CNBC's "Closing Bell."

Sheila Bair
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Bair pointed to a proposed rule that would require the banks to issue "very thick cushions of long-term debt" that they could later convert into equity in a crunch. It would give them enough capital to carry out crucial functions, she said.

"A systemic disruption is something you want to avoid for the customers of the banks. The people who use the banks," Bair said.

The proposal is currently in a public comment period and has received "a lot of industry pushback," she noted.

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While it may not address the problem alone, the fintech industry could also help make the financial system safer, Bair added. Technology in the sector aims to make the system cheaper and more efficient.

Bair said fintech can make lending more efficient, particularly on the consumer side, but it needs the traditional banking system to thrive.

"You can't survive without the two together," she said.

Programming note: Kashkari will speak to CNBC's "Closing Bell" at 3 p.m. EDT on Tuesday.