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Inside Washington (10/22/2009)
* WASHINGTON (10/23/09)--Speaking to the Exchequer Club in Washington Wednesday, Federal Reserve Board Gov. Daniel Tarullo discussed several ways to contain the problem that several of the nation’s largest banks are considered “too big to fail.” He suggested Congress create a special resolution procedure for systemically important firms, requiring large firms to have specified forms of contingent capital, and improve disclosure requirements for financial institutions. He also recognized that even if the measures are implemented, the “too big to fail” problem may still be tough to contain. Other alternatives he noted included “reversing the 30-year trend that allowed progressively more financial activities within commercial banks and more affiliations with non-bank financial firms. The idea is presumably to insulate insured depository institutions from trading or other capital market activities that are thought riskier than traditional lending functions,” Tarullo said. “Another approach would be to attack the bigness problem head-on by limiting the size or interconnectedness of financial institutions. Some observers have even suggested that existing large firms should be split up into smaller, not-too-big-to-fail entities.” But even without “too big to fail” problems, financial instability can still occur, he added ...


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