Volcker criticizes Obama banking plan
Former Federal Reserve Chairman Paul Volcker criticized the Obama administration’s plan to subject “systemically important” financial firms to more stringent regulation by the Fed.
Volcker told lawmakers today that such a designation would imply government readiness to support the firms in a crisis, encouraging even more risky behavior in a phenomenon known as “moral hazard.”
“Whether they say it or not, that carries the connotation in the market that they’re too big to fail,” Volcker, who is chairman of the White House Economic Recovery Advisory Board, said in testimony to the House Financial Services Committee.
“The danger is the spread of moral hazard could make the next crisis much bigger,” said Volcker, who serves as an outside economic adviser to Obama. Volcker has criticized key elements of the Obama administration regulatory plan in recent public statements, and his remarks today largely reprised those criticisms.