The problem of some firms being perceived as “too big to fail” is the among the “most serious and most insidious” barriers to competition in financial markets, Bernanke said in a speech for delivery at an Independent Community Bankers of America conference.
“It is unconscionable that the fate of the world economy should be so closely tied to the fortunes of a relatively small number of giant financial firms,” he said.
Bernanke laid out a three-pronged approach favoured by the Fed on how to tackle the problem of firms that are so big and interconnected that markets believe the government would step in if they faltered.
First, we develop and implement significantly tougher rules and oversight that serve to reduce the risks that large, complex firms present to the financial system, Bernanke said.
Secondly, Fed is working on efforts to make the financial system more resilient should a firm fail, he said. Thirdly, a new legal framework that enables the government to wind down large failing firms is needed.
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