Central Banks As A Systemically Important Financial Institution

Example Federal Reserve Board

If we agree that e.g. the Federal Reserve Board is such an institution, then who supervises the Fed, which has helped to trigger the real estate implosion, the financial crisis of 2008, and the sovereign debt crisis of Western countries.

A Culprit Of The Great Recession

Anybody who claims that the Fed or its then Chairman Bernanke prevented worse do not know what they are talking about.

Cheap money has been and still is a reckless policy conducted by the Fed. The Fed completely failed to prevent the drastic deterioration of lending standards before the real estate bubble burst. I have written a number of blog posts about this subject (see e.g. here, here).

A Systemically Important Financial Institution

This is the latest regulatory boondoggle our mostly inept political leaders came up with. It is a typical overreaction we have seen so often. It is telling that our political leaders apply SIFI only to financial institutions other than central banks.

To divide financial institutions in this way will not prevent the next financial crisis. On the contrary, such arbitrary distinctions will be circumvented. New financial institutions or instruments will be created as necessary.

Large Financial Institutions Are Treated As Utilities

Anyone who still continues to allege that the financial sector was not regulated or was wrongly deregulated is a fool.

Thanks to acts like Dodd-Frank Wall Street Reform and Consumer Protection Act  our political leaders have essentially nationalized large banks. This particular act has also severely and unnecessarily impacted much smaller financial institutions other than the big banks e.g. debt collectors.