Even Bank Bailout Architect Says Time To Break Up Banks

As a purportedly liberal presidential candidate named Hillary Clinton mocks the idea of breaking up the Too Big To Fail Wall Street banks, one of the bank bailout’s chief architects is championing the idea from inside the Federal Reserve System.

This week, Neel Kashkari, president of the Minneapolis Federal Reserve, called for breaking up the TBTF banks to prevent future bailouts during a speech at the Brookings Institution. “Now is the right time for Congress to consider going further than Dodd-Frank with bold, transformational solutions to solve this problem once and for all,” he said. Kashkari claimed he was skeptical that current policy tools “will be useful,” in preventing the next crisis.

Kashkari came into the public eye when former Treasury Secretary Hank Paulson brought him into government and ultimately assigned him to the team at Treasury responsible for dealing with the 2008 financial crisis. Kashkari was one of many Paulson staffers who came from Goldman Sachs. He previously worked in investment banking, with a focus on software companies, at their San Francisco office.

The $700 bank bailout plan Kashkari helped author, known as the Troubled Asset Relief Program (TARP), stopped the Wall Street firms that caused the crisis from going bankrupt. A parallel process, undertaken by New York President Timothy Geithner along with the Treasury Department, pressured the Wall Street banks to merge and get even bigger in hopes that size would increase confidence in the financial system.

Kashkari left the treasury department to take a job with investment firm Pimco in 2009. In 2013, Kashkari resigned from Pimco and ran for governor of California in 2014, which he lost decisively to Governor Jerry Brown.

In 2015, Kashkari became the president and CEO of the Minneapolis Federal Reserve Bank, and, in 2017, he is set to join the most powerful committee in the Federal Reserve System. Known as the Federal Open Market Committee (FOMC), it plays a central role in U.S. monetary policy and could even take some measures to push for a breakup.

In his speech on Tuesday, Kashkari offered a few routes to protecting the U.S. economy from TBTF Wall Street banks including a simple break up of the banks into smaller entities, making some of them public utilities, or taxing leverage highly enough to force the banks to severely limit their risk-taking.

2017 might be a tough year for the Too Big To Fail banks no matter who is in the White House.