WHEN: Today, Tuesday, April 5th
WHERE: CNBC's "Closing Bell"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Federal Reserve Bank of Minneapolis President Neel Kashkari on CNBC's "Closing Bell" (M-F, 3PM-5PM ET) today, Tuesday, April 5th. Following is a link to the video on CNBC.com: http://video.cnbc.com/gallery/?video=3000506813.
All references must be sourced to CNBC.
KAYLA TAUSCHE: MINNEAPOLIS FEDERAL RESERVE PRESIDENT NEEL KASHKARI IS CALLING FOR THE BREAK UP OF BIG BANKS IN THIS COUNTRY. YESTERDAY, FORMER FDIC CHAIR SHEILA BAIR, WHO HAS DONE A LOT OF WORK ON THE TOO BIG TO FAIL ISSUE HERSELF, HAD THIS TO SAY.
SOUND FROM SHEILA BAIR: I THINK TOO BIG TO FAIL IS STILL A PROBLEM. I WISH HE WAS THIS VOCAL IN 2010 WHEN WE WERE DOING DODD FRANK, I'LL PUT THAT ASIDE. GARY STERN, HIS PREDECESSOR, TWO PRESIDENTS AGO, WAS VERY, VERY BIG ON TOO BIG TO FAIL. HE AND I WORKED TOGETHER EVEN PRIOR TO THE CRISIS ON THIS. SO THERE IS A LONG TRADITION AT MINNEAPOLIS FED ON THIS ISSUE.
TAUSCHE: NEEL KASHKARI JOINS US NOW IN AN EXCLUSIVE INTERVIEW. AND MR. KASHKARI, TAKE A MOMENT TO RESPOND TO WHAT SHEILA BAIR HAD TO SAY ABOIUT WHY YOU'RE CHOOSING RIGHT NOW TO BE SO VOCAL ON AN ISSUE THAT HAS BEEN AT WORK IN WASHINGTON FOR EIGHT YEARS?
NEEL KASHKARI: WELL, FIRST OF ALL, THANKS A LOT FOR HAVING ME. YOU KNOW, IN 2011, JUST AFTER DODD FRANK WAS PASSED, I GAVE A SPEECH AT THE CHICAGO FED AND I EXPRESSED SOME OF MY CONCERNS THAT I THOUGHT DODD FRANK DID A LOT OF GOOD BUT IT DIDN'T REALLY SOLVE THE TOO BIG TO FAIL PROBLEM. I WENT BACK TO THE PRIVATE SECTOR. AS YOU KNOW, I RAN FOR OFFICE NOW JOINING THE MINNEAPOLIS FED. I'VE BEEN ABLE TO WORK WITH THE EXPERTS HERE IN MINNEAPOLIS TO LOOK AT WHAT'S BEEN ACCOMPLISHED WITH DODD FRANK AND WHAT'S LEFT REMAINING. MORE THAN ANYTHING, I JUST DON'T WANT THE AMERICAN PEOPLE TO HAVE A FALSE SENSE OF SECURITY THAT WE'VE ADDRESSED TOO BIG TO FAIL, THAT THIS CAN'T HAPPEN AGAIN. I THINK SOME OF THOSE RISKS REMAIN AND WE NEED TO CONSIDER MORE TRANSFORMATIONAL SOLUTIONS TO DEAL WITH THIS PROBLEM ONCE AND FOR ALL.
BILL GRIFFETH: YOU KNOW, I'M GOING TO COME OFF AS A CYNICAL JOURNALIST BY ASKING THIS, BUT I DON'T MEAN THIS IN A CONFRONTATIONAL WAY, BUT WHY ARE YOU DOING – WHY ARE YOU USING THE BULLY PULPIT OF THE MINNEAPOLIS FED TO FURTHER THIS CAUSE? I MEAN YES, THERE'S A TRADITION, GARY STERN WAS VERY BIG ON THIS AS SHEILA BAIR MENTIONED, BUT THERE'S NO AUTHORITY. YOU CARRY NO AUTHORITY. THERE'S NO REGULATION THAT YOU COULD COME UP WITH THAT WOULD DO ANYTHING ABOUT THIS. ALL YOU'RE DOING IS JUST JAW BONING AROUND THE COUNTRY TO TALK ABOUT THIS ISSUE THAT THEY'VE BEEN DEALING WITH IN WASHINGTON FOR EIGHT YEARS. WHY NOW?
KASHKARI: WELL, IF I'M NOT GOING TO SPEAK UP, WHO'S GOING TO DO IT? DO YOU THINK IT'S OKAY IF CONGRESS AND THE AMERICAN PEOPLE ARE LEFT WITH A FALSE SENSE OF SECURITY THAT THIS CRISIS CAN'T HAPPEN AGAIN IN 20 OR 50 YEARS FROM NOW WE MAY NOT BE BACK IN THE SAME SITUATION? I FEEL LIKE I HAVE A MORAL OBLIGATION TO STAND UP.
GRIFFETH: SO YOU DON'T THINK THAT DODD FRANK HAS GONE FAR ENOUGH? THAT THE CAPITAL REQUIREMENTS THAT ARE IN PLACE NOW AND SOME OF THE OTHER REGULATIONS THAT, BY THE WAY, PEOPLE LIKE JAMIE DIMON, YOU KNOW, THEY'VE OFTEN CALLED DODD FRANK, DODD FRANKENSTEIN. THEY ARE FED UP WITH THE REGULATIONS THAT THEY ALREADY HAVE TO DEAL WITH. YOU DON'T THINK IT'S GONE FAR ENOUGH?
KASHKARI: FOR THE BIGGEST BANKS, NO I DON'T. HERE'S THE KEY THING. DODD FRANK HAS DONE SOME GOOD. MORE CAPITAL, DEEPER LIQUIDITY, STRESS TESTING – THESE ARE ALL STEPS IN THE RIGHT DIRECTION. I ABSOLUTELY ACKNOWLEDGE THAT. BUT THE QUESTION IS IN A STRESSED ECONOMIC ENVIRONMENT LIKE A CRISIS WHEN MULTIPLE BANKS ARE RUNNING INTO TROUBLE AT THE SAME TIME, WILL WE ACTUALLY BE ABLE TO HAIR CUT BOND HOLDERS AND CREDITORS? I SAY THE ANSWER IS NO. AND THE REASON IS THE CONTAGION FROM ONE BANK TO ANOTHER BANK TO ANOTHER BANK. NO ONE YET HAS FIGURED OUT HOW TO SOLVE THAT CONTAGION RISK. DODD FRANK HASN'T DONE IT. THE T-LACK HASN'T DONE IT. WE SEE IT IN EUROPE WITH THE CONTINGENT CONVERSION DEBT. THOSE CONTINGENT CONVERSION SECURITIES HAVEN'T ADDED TO STABILITY. THEY'VE ACTUALLY ADDED TO INSTABILITY AND UNCERTAINTY. WE NEED TO BE HONEST ABOUT THAT.
TAUSCHE: SO DO YOU THINK THE SYSTEM REALLY WOULD BE MORE SECURE IF YOU BROKE UP THE BANKS AND GAVE THE FED AND THE U.S. ECONOMY THREE OR MORE NEW PURE PLAY INVESTMENT BANKS THAT THEY WOULD HAVE TO HOLD CAPITAL AGAINST AND WOULD STILL HAVE INHERENT RISK IN THE BUSINESS MODEL BUT NOT CUSHIONED BY OTHER BUSINESS UNITS? WOULD THAT REALLY BE THE IDEAL OUTCOME FOR YOU FOR THE ECONOMY?
KASHKARI: WELL, WE HAVEN'T DECIDED WHAT THE IDEAL STRUCTURE LOOKS LIKE. WHAT I'M SAYING IS AND WHAT WE IN MINNEAPOLIS ARE SAYING IS A BUNCH OF THESE TRANSFORMATIONAL SOLUTIONS WERE TAKEN OFF THE TABLE IN 2010. IT WAS TOO – THEY ARE TOO BOLD COMING OUT OF THE CRISIS. I'M SAYING NOW IS THE TIME TO REFLECT ON THE LAST SEVEN OR EIGHT YEARS. WHAT HAVE WE LEARNED, WHAT PROGRESS HAS BEEN MADE, WHAT GAPS REMAIN? BREAKING UP THE BANKS IS ONE OF THE OPTIONS THAT WE LOOKED AT YESTERDAY, PROFESSOR JOHNSON AT M.I.T. TALKED ABOUT IT. PROFESSOR ADMATI FROM STANFORD TALKED ABOUT INCREASING THE CAPITAL REQUIREMENTS SO BANKS ARE SO STRONG THEY VIRTUALLY CAN'T FAIL. YOU CAN NEVER ELIMINATE ALL RISK AND I DON'T THINK WE WOULD WANT TO, BUT I THINK WE CAN GO FURTHER THAN WE'VE GONE TODAY. AND IT'S ALL ABOUT COST BENEFIT ANALYSIS. WHERE'S THE OPTIMAL SAFETY VERSUS COST VERSUS RISK FOR THE ECONOMY AND FOR THE COUNTRY?
TAUSCHE: SO YOU'RE ACKNOWLEDGING THOUGH THAT A REVIEW HAS TO BE DONE AND IS ABOUT TO BE DONE, BUT SOME OF THE CRITICISM ESPECIALLY FROM TONY FRATTO FROM HAMILTON PLACE STRATEGIES, HE SAID THAT THE ISSUE IS THAT YOU'RE BEGINNING A REVIEW NOT WITH QUESTIONS BUT CONCLUSION. IS THAT FAIR?
KASHKARI: WELL, FIRST OF ALL, I LOVE TONY FRATTO. WE WORKED TOGETHER AT TREASURY AND HE IS THE ULTIMATE BANK LOBBYIST WHO PASSIONATELY FIGHTS FOR HIS CLIENTS AND I HAVE NOTHING BUT RESPECT FOR HIM IN THAT CAPACITY. BUT I DON'T THINK SO. IF ANYBODY TUNED IN, YOU KNOW, WE LIVE STREAMED OUR SYMPOSIUM YESTERDAY. IT WAS OPEN TO PRESS, OPEN TO THE PUBLIC TO WATCH AND PARTICIPATE. WE HAD A VIBRANT DISCUSSION. ALL SIDES WERE REPRESENTED AND WE REALLY BROUGHT A LOT OF THE COMPLEXITIES AND A LOT OF THE ISSUES FORWARD. SO I WOULD ENCOURAGE YOU AND YOUR COLLEAGUES AT CNBC AND PEOPLE IN THE PUBLIC ALL AROUND TO WATCH US, PAY CLOSE ATTENTION. YOU'RE GOING TO SEE HOW DEEP WE ARE GOING TO GO INTO THIS AND THAT'S ULTIMATELY WHAT IS GOING TO SHAPE OUR CONCLUSIONS, NOTHING ELSE.
GRIFFETH: ALRIGHT, WELL LET'S BE MORE PRACTICAL ABOUT THIS. WHAT WOULD YOU LIKE TO SEE HAPPEN THEN? I MEAN, ESPECIALLY WHEN YOU CONSIDER THAT YOUR OWN BOSS, JANET YELLEN, DURING HER LAST NEWS CONFERENCE WHEN SHE WAS ASKED ABOUT THE PROGRESS OF DODD FRANK AND BANK REGULATIONS SAID THAT SHE FELT LIKE THEY HAD MADE PROGRESS. I MEAN, IT SOUNDED, YOU KNOW, SOME INTERPRETTED THAT AS KIND OF A LITTLE PUSHBACK TO YOU FOR MAKING THE NOISE YOU HAVE SINCE YOU TOOK OVER AT MINNEAPOLIS.
KASHKARI: WELL, YOU KNOW, 100 YEARS AGO WHEN CONGRESS CREATED THE FEDERAL RESERVE SYSTEM BY DESIGN, THEY CREATED A DISTRIBUTED FEDERAL RESERVE REPRESENTING THE NATION TO ENCOURAGE A DIVERSITY OF VIEWS. AND I THINK IT'S A GOOD THING THAT WE HAVE A DIVERSITY OF VIEWS ON THIS AND MANY OTHER ISSUES ACROSS THE FEDERAL RESERVE SYSTEM. AND SO WE'RE INVITING ALL OF OUR COLLEAGUES WHO WANT TO PARTICIPATE TO PARTICIPATE. WE'RE LISTENING TO ALL VIEWS AND I'VE JUST COMMITED BY THE END OF THE YEAR WE'RE GOING TO COME OUT WITH OUR BEST ANALYSIS, OUR BEST RECOMMENDATION GOING FORWARD. AT THE END OF THE DAY, IT'S UP TO THE AMERICAN PEOPLE TO DECIDE, DO WE HAVE THE RIGHT BALANCE OF SAFETY VERSUS COST VERSUS RISKS? I WANT TO MAKE SURE THE AMERICAN PEOPLE ARE AS INFORMED AND EDUCATED AS POSSIBLE SO THAT THEY AND THEIR ELECTED REPRESENTATIVES CAN MAKE THE BEST DECISIONS. IT'S NOT UP TO US, IT'S NOT UP TO ME TO MAKE THAT DECISION. I THINK IT'S UP TO THE PEOPLE. THAT'S WHY WE'RE RUNNING A VERY PUBLIC TRANSPARENT PROCESS SO THEY HAVE THE BEST INFORMATION POSSIBLE.
GRIFFETH: ALRIGHT, VERY GOOD. NEEL, GOOD TO SEE YOU AGAIN. THANK YOU FOR YOUR TIME. APPRECIATE IT.
KASHKARI: THANK YOU VERY MUCH. APPRECIATE IT.
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