Giant Wall Street banks may still be too big to fail and get bailed out by the federal government in a future crisis, according to one of the principal architects of post-financial crisis reforms. | Bryan R. Smith/AFP/Getty Images Why Wall Street banks may still be too big to fail

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Giant Wall Street banks may still be too big to fail and get bailed out by the federal government in a future crisis, according to one of the principal architects of post-financial crisis reforms.


“We are certainly a lot safer now than we were 10 or 12 years ago. The largest institutions are substantially better capitalized; they have much more sustainable funding patterns,” said Daniel Tarullo, a former Federal Reserve governor who helped implement key elements of the Dodd-Frank financial reform law, on the latest edition of the POLITICO Money podcast.

“But for all of that, I think there is still some legitimate question among people as to whether if one of them got into significant trouble — and if one does the others will probably be at least under some stress — whether there still wouldn’t be a view that they are too big to fail and that the government should take extraordinary measures,” he said.

Tarullo, now a visiting law professor at Harvard University, rejected the idea pushed by some Democrats that President Donald Trump’s picks for key financial regulatory positions are rolling back critical Wall Street reforms. “I don’t think there has been an erosion of the gains that we did make,” he said. “To date I would say it’s more working around the edges of the biggest banks and not cutting to the heart of what was accomplished.”

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Tarullo did warn about potential dangers from significant changes to the Volcker Rule — named for former Fed Chairman Paul Volcker — which limits the ability of big banks to engage in proprietary trading and other risky activities.

And he said banks should not be given too much information about the stress tests now administered by the Fed to gauge how large institutions would fare in another financial crisis.

“The kind of transparency that some of the banks and some of their lobbyists are asking for would undermine the whole purpose of the stress tests,” he said. “It is very much like allowing the student to see the questions beforehand, before coming in and taking the exam.”

