WASHINGTON (Reuters) - Large financial institutions continue to pose major risks to the U.S. economy, and must be broken up in order to avoid another meltdown, Kansas City Federal Reserve President Thomas Hoenig said on Wednesday.
Citing a number of shortcomings in the recently enacted U.S. financial reform legislation, Hoenig argued that many of the firms whose size helped drive the financial system into crisis are now larger than ever.
He also argued that regulators still lack sufficient powers to rein in financial giants, adding that the unfair advantages they glean from the implicit protection of government are self-reinforcing.
"We must break up the largest banks, and could do so by expanding the Volcker Rule and significantly narrowing the scope of institutions that are now more powerful and more of a threat to our capitalistic system than prior to the crisis," Hoenig told a meeting of the Women in Housing and Finance.
Hoenig called for "Glass Steagall-type" provisions that would no longer allow commercial banks to engage in the riskier activities normally confined to the investment sector.
"We must make sure that large financial organizations are not in position to hold the U.S. economy hostage.
