Dallas Fed calls for end of ‘Too big to fail’

Dallas Fed calls for end of ‘Too big to fail’


Early in 2012, the Federal Reserve Bank of Dallas made a plea in its annual report to make too-big-to-fail financial institutions a thing of the past. Now a year – and many new regulations – later, the Dallas Fed is once again advocating that the largest banks be broken up for the good of the American economy. It recommends that lasting financial stability can be best achieved by reinforcing the traditional banking model used by community, regional and other mid-sized banks.

The special report, “Financial Stability: Traditional Banks Pave the Way,” clearly states that financial stability can be found in neither the biggest financial institutions at the heart of the recent crisis nor in the misplaced hope that increased regulations will rein in these banks. Rather, it can be found in the thousands of small and more traditionally oriented community banks across the country that have demonstrated stability during and after the financial meltdown.

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In his introduction to the report, Richard Fisher, president and chief executive officer of the Federal Reserve Bank of Dallas, offered thought-provoking analysis of the industry’s current status, and asked questions of its future. “When it comes to our financial sector, we’ve seemingly stumbled into a place where we never wanted to be. Just as disturbing, we don’t know how to get out. Do we simply accept that big banks will get bigger? Do we try to rein in their excesses through all-encompassing regulation, even if it risks burdening small and medium-sized banks that had little to do with the financial crisis? Or do we dedicate ourselves to creating a diverse financial system in which no bank is too big to fail?”

I couldn’t agree more with Richard Fisher and the Dallas Fed economists that it’s time for financial reform and perhaps even policy intervention. As noted in the Fed report, the government’s financial safety net for the biggest banks should cover only their essential banking activities and their role in the payments system. Beyond that, market discipline can reassert itself and banks of all sizes will be on a more level playing field. Favorable government policies continue to allow too-big-to-fail-banks to grow larger and more dominant, and this must be stopped – and soon. It’s become painfully obvious that we need to quickly get to a point where even if the largest bank in the country fails, it would not endanger our economy.

Personally, I’ve always believed that our state’s many independent, locally owned community banks have long been the “model citizens” of our financial services industry. Not only do these banks offer personalized services tailored to meet the needs of individuals, families and small businesses, but they also foster economic growth through local investment in communities across the state. I concur with the Dallas Fed that it’s up to each and every one of us as consumers to help determine the future of America’s banking system. Support your local banks and in addition to giving back to your community, you are helping to end too big to fail.


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Williston is president and CEO of the Independent Bankers

Association of Texas. The Austin-based group represents more than 2,000 banks and branches in 700 Texas communities with combined assets of nearly $165 billion.