It has been six years since the global financial crisis and the accompanying banking sector bailouts, but regulators still haven’t fixed the problem of too-big-to-fail banks, a Federal Reserve official said Tuesday.
Jeffrey Lacker, president of the Richmond Federal Reserve Bank, made his comments to the LSU Graduate School of Banking.
“The long-term solution is not more regulation. Instead, it’s to restore market discipline so that financial firms and their creditors have an incentive to avoid fragile funding arrangements,” Lacker said.
Two things will be required to make this happen, he said. Creditors must not expect government support in the event of financial distress, and policymakers must allow financial firms to fail without government support.