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Bernanke: We Will Do What It Takes to End 'Too Big to Fail'

For example, Powell noted two remaining challenges for supervisors in their effort to safely unwind banks using a Dodd-Frank authority known as orderly liquidation. The first, he said in his speech, is that all systemically important firms have enough unsecured long-term debt with the parent in order to be able to recapitalize a bridge holding company, and the second obstacle: reducing cross-border impediments to resolving a multinational financial company.

"In consultation with the FDIC, the Federal Reserve is considering the pros and cons of a regulatory requirement that systemic U.S. financial firms maintain a minimum amount of long-term unsecured debt," said Powell. "Such a requirement would help ensure that equity and long-term debt holders of a systemic firm can bear potential future losses at the firm and sufficiently capitalize a bridge holding company."

He also endorsed a proposal suggested by Fed Gov. Daniel Tarullo in October for lawmakers to consider placing a limit on the size of the largest banks by limiting the nondeposit liabilities of financial firms to a specific percentage of gross domestic product.

"In addition to the virtue of simplicity, this approach has the advantage of tying the limitation on growth of financial firms to the growth of the national economy and its capacity to absorb losses, as well as to the extent of a firm's dependence on funding from sources other than the stable base of deposits," Tarullo said in a speech at the University of Pennsylvania Law School.

A third proposal, by Jeremiah Norton, a board member of the Federal Deposit Insurance Corp., called on U.S. regulators to consider imposing a stronger leverage ratio for banks. Regulators, he said, should require banks to meet a minimum ratio of tangible common equity to non-risk-weighted assets, warning that the current Basel III proposal relies excessively on risk-weightings that do not adequately capture risk.




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