Top Federal Reserve Board officials, including Fed Chairman Ben Bernanke, believe it is best to carry out the current reform process to solve the "too big to fail" issue, but are ready to significantly increase capital standards if the problem persists.
In a speech to the Chicago Fed conference last week, Bernanke, who is the most recent central banker to agree on such an approach, said that tougher capital requirements were the solution to "too big to fail."
"But Bernanke and other Fed officials have repeatedly stressed that the Dodd-Frank Act and the Basel III package of capital and liquidity rules have not been fully implemented and must be given time to work. They have made it clear that the Fed is willing to revisit the issue once those reforms are complete," writes American Banker's Donna Borak.
Other Fed board members agree with Bernanke. Fed Gov. Daniel Tarullo and Gov. Jeremy Stein have separately called for going beyond Basel III capital requirements if necessary.
"While I agree we have a long way to go, I believe that the way to get there is not by abandoning the current reform agenda, but rather by sticking to its broad contours and ratcheting up its forcefulness on a number of dimensions," Stein said during a speech at the International Monetary Fund's annual spring meeting in April.
For the full piece see "Fed Ready to Raise Capital Standards If TBTF Remains Unsolved" (may require subscription).
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