Financial institutions believed to be "too big to fail" need to be broken up and reduced to a size that eliminates their threat, a Federal Reserve official said Wednesday.

Richard Fisher, president of the Federal Reserve Bank of Dallas, said he supports "an international accord to break up these institutions into ones of more manageable size. More manageable for both the executives of these institutions and their regulatory supervisors."

Fisher said that while creating a mechanism that would better allow for an orderly failure of a large institution would be a "step forward," he said he believes even this falls short.

Fisher warned a resolution mechanism would merely create for creditors the perception that large institutions would continue to have a "government-sponsored advantage bestowed upon them," thus continuing the "too big to fail" problem.

"The disagreeable but sound thing to do" with "too big to fail" firms "is to dismantle them over time into institutions that can be prudently managed and regulated across borders."

Fisher, who does not hold a voting slot on the interest rate setting Federal Open Market Committee, was speaking before an event in New York held by the Levy Economics Institute of Bard College.

His comments came from the text of a speech to be delivered before that event. Fisher refrained from making comments about the monetary policy and economic outlook.

His comments about breaking up megabanks are among the most aggressive of Fed officials, and they are at odds with Chairman Ben Bernanke, who has favored the view that size alone is not the problem with banks.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.