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Thomas Hoenig Warns of TBTF Danger in Handelsblatt Interview

Nov. 5, 2016 (EIRNS)—Thomas Hoenig, the Vice Chairman of the Federal Deposit Insurance Corp. and former President of the Kansas City Federal Reserve Bank, told German business daily Handelsblatt this week that the too-big-to-fail banks are far too highly leveraged, and major changes are required to avoid another systemic crisis which would raise demands for a new taxpayers’ bailout. He told Handelsblatt, in an interview which was part of its U.S. election coverage, that the TBTF banks are bigger than they were at the time of the 2008 Lehman Brothers blowout, and they are currently holding an average of only 5% capitalization. He said they must restore liquid capital to 10%-12% to avoid another systemic crisis. If any of the TBTF banks fail under current conditions, the system will not survive the shock without another massive taxpayers bailout. In addition, he warned that the zero-interest-rate policy has further crippled the banks’ ability to make a profit, given the reduced investment returns, and this, too must end. We must, he insisted, return to a normal monetary policy.

The interviewer did not raise the issue of Glass-Steagall, which Hoenig has always supported in the past.