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How would Yellen end TBTF?

By Marcie Geffner · Bankrate.com
Tuesday, November 19, 2013
Posted: 12 pm ET

The advocacy group Public Citizen wasn't asking the questions when the U.S. Senate Banking Committee held its hearing this week to consider President Barack Obama's nomination of Janet Yellen to be chair of the Federal Reserve Board of Governors.

But that didn't stop the group from issuing a statement with the pointed questions it said should have been asked about how, exactly, Yellen would resolve the problem of banks that are too big to fail without severe disruption to the U.S. financial system.

As its name implies, Public Citizen is a nonprofit group that advocates on behalf of everyday citizens' interests in issues related to health, safety and democracy.

The financial system is still susceptible to instability more than three years after the enactment of the landmark Dodd-Frank Wall Street Reform and Consumer Protection Act, the group said. As Fed chair, Yellen could push the Fed harder to limit risky banking practices and make the financial system safer.

In its statement, the group encouraged the senators to ask Yellen "probing questions" about:

  • Bank capital requirements.
  • How banks should hold long-term unsecured debt at the holding company level to ensure that they can be liquidated and recapitalized if they fail.
  • Bank over-reliance on short-term debt.
  • Scrutiny and, if appropriate, restriction of bank ownership of physical commodities.
  • Implementation of a Dodd-Frank rule that would restrict compensation schemes that incentivize bank employees to take unwise risks.
  • How to make banks "smaller, simpler and safer" so they're no longer too big to fail.

Micah Hauptman, financial policy counsel at Public Citizen, said Yellen can "hit the reset button at the Fed" and redirect the central bank from "coddling Wall Street to passing strong rules that help prevent future crises."

Bartlett Naylor, financial policy advocate at Public Citizen, added that Congress created the Fed "to serve America, not the banks."

"Too often, the Fed seems to judge its success by the wealth of the industry it supervises, not the health of [the] nation," Naylor stated in a press release. "Ms. Yellen needs to express clarity in her views about protecting our financial system, and if confirmed, must retain new, independent experts to guide her as staff."

Do you think the Fed is doing enough to make banks safe?

Follow me on Twitter: @marciegeff.

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