On Tuesday’s broadcast of “CNN This Morning,” Minneapolis Fed President Neel Kashkari stated that we are repeating what we did in 2008 where we made big banks bigger “to preserve near-term financial stability, knowing that it made the problem worse in the long-term” and there is a “systemic risk” where “customers know that essentially the biggest banks in America have unlimited deposit insurance” and are pulling their money out of mid-sized banks.
Co-host Poppy Harlow asked, “Secretary Yellen said…that she thinks more bank mergers essentially or takeovers may be in the cards for the future. We saw Jamie Dimon, JPMorgan swoop in and buy up the assets of failing First Republic Bank. Was that a good thing? Because you talk a lot about banks being too big, or does it concern you that JPMorgan, America’s biggest bank, just got bigger?”
Kashkari answered, “It concerns me. We faced the same awful choice in 2008, where we had to allow big banks to get bigger to preserve near-term financial stability, knowing that it made the problem worse in the long-term. So, we’re right back where we were. I mean, it’s different, but we’re in a similar situation than we were in ’08.”
He added, “Yes, they’re too big to fail. And this has created a systemic risk in the banking sector, because customers know that essentially the biggest banks in America have unlimited deposit insurance. So, if you’re a customer, if you’re an industrial company with a mid-sized bank and you’re getting a little bit nervous, why wouldn’t you just move all your money into the biggest banks?”
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