Thomas Hoenig, the president of the Federal Reserve Bank of Kansas City, rejected the notion Friday that some financial institutions are "too big to fail"; the government should be more aggressive in taking over troubled banks, he said.
"Many are now beginning to criticize the idea of public authorities taking over large institutions on the grounds that we would be 'nationalizing' our financial system," he said in a speech in Omaha. "I believe that this is a misnomer, as we are taking a temporary step that is aimed at cleaning up a limited number of failed institutions and returning them to private ownership as soon as possible. This is something that the banking agencies have done many times before with smaller institutions and, in selected cases, with very large institutions."
His comments came the same week that Federal Reserve Board Chairman Ben Bernanke told a Senate panel that some companies, such as American International Group Inc., are so large that the government must do whatever is needed to prop them up.
Hoenig also criticized the rushed nature of many government bailouts. "Our recent experience with ad hoc solutionsto large failing firms has led to even more concentrated financial markets as only the largest institutions are likely to have the available resources for the type of hasty takeovers that have occurred," he said.
