The Federal Reserve Bank of Kansas City president, Thomas Hoenig, said the existence of companies whose failure would threaten the financial system is an obstacle to economic growth and impedes competition.
Companies deemed systemically important financial institutions, or SIFIs, “are fundamentally inconsistent with capitalism,” Hoenig said Monday in a speech in Washington. “They are inherently destabilizing to global markets and detrimental to world growth.”
The remarks by Hoenig, who has called for the breakup of the biggest financial firms, are among his strongest as he nears the end of a two-decade tenure as a Fed policy maker. He said policy makers “must go beyond” the Dodd-Frank Act of 2010 overhauling regulation, including by shrinking the government’s safety net.
“So long as the concept of a SIFI exists, and there are institutions so powerful and considered so important that they require special support and different rules, the future of capitalism is at risk and our market economy is in peril,” Hoenig said at an event hosted by the Pew Financial Reform Project and New York University Stern School of Business.
Hoenig spoke after international regulators forged an agreement over the weekend that requires the world’s largest banks to hold extra capital.
Banks considered systemically important would be required to hold between 1 percentage point and 2.5 points of extra capital as a proportion of their risk-weighted assets. That is on top of the 7 percent capital buffer required for all internationally active banks.
