Federal Reserve Bank of Dallas President Richard Fisher said an implicit government guarantee for the biggest U.S. banks is an “injustice” that prompts them to take excessive risks and that they should be allowed to fail, Bloomberg News reported yesterday. The largest financial firms should be restructured so each of their units “is subject to a speedy bankruptcy process,” and creditors should be notified their investments won’t be guaranteed by the government, Fisher said in testimony prepared for a House Financial Services Committee hearing today on the risk of taxpayer-funded bailouts for banks. Fisher reiterated his view that the government should break up the biggest institutions to safeguard the financial system. He is one of the central bank’s most vocal critics of the “too-big-to-fail” advantage he says large firms have over smaller rivals. In Fisher’s view, the 2010 Dodd-Frank Act hasn’t fixed a system in which the biggest banks are “seen as critical to the proper functioning of our economy” and deserve rescues.
