This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Ben vs. Bernie on Too Big to Fail

NEW YORK (TheStreet) -- Federal Reserve Chairman Ben Bernanke said in testimony Wednesday that he believes the best approach to solving "Too Big to Fail" would be to require banks to hold more capital.

In an exchange with independent Senator Bernie Sanders of Vermont, Bernanke said that the Fed was doing a "lot of things" through the Orderly Liquidation Authority as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, to address the issue.

Regulations based on Dodd-Frank aim at making banks safer by requiring them to hold more capital and restricting risk taking activities, while preventing future bailouts.

Still, the market perception that some banks are so big that the government would bail them out in the event of failure, has not gone away. A number of solutions have been proposed to resolve this problem, including mandating caps on the size of banks, increasing capital beyond the levels proposed by Basel III and bringing back Glass-Steagall, a defunct act that prohibited commercial banks from engaging in investment banking activities.

"Glass-Steagall is not the solution," Bernanke told Sanders, pointing out that both independent investment banks and independent commercial banks failed during the last financial crisis.


Instead, Bernanke said that of all the solutions proposed, requiring big banks to hold more capital was likely the most effective because there is an increasing cost that comes with being large that might automatically force some banks to break up.


Sanders also asked Bernanke if the Fed's policy of paying interest on excess reserves that banks park with the central bank was limiting lending.

Bernanke said that banks had no control on the level of excess reserves in the system. He also said the interest rate that the Fed paid was not high enough to prevent banks from lending, as banks could get much higher yields on commercial loans.

Another issue that bothers Sanders is the "absurdity" in the Fed's charter that allows people like JPMorgan Chase CEO Jamie Dimon to sit on the board of the Federal Reserve Bank of New York, a clear example of a "Fox guarding the hen house."

Under the current structure, all regional reserve banks have a nine-member board of directors. Three of the directors are bankers in their respective districts, known as Class A directors. The remaining six, known as Class B and Class C directors, represent the interests of the public.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,982.59 +22.02 0.13%
S&P 500 1,978.91 +0.57 0.03%
NASDAQ 4,444.9090 -4.6550 -0.10%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs