Federal Reserve Bank of Minneapolis President Neel Kashkari says the current banking crisis has pushed the US economy closer to a recession. “We have fundamental problems, regulatory problems that our banking system is facing,” the Fed official pointed out.
Neel Kashkari on US economy, banking crisis, recession
Federal Reserve Bank of Minneapolis President Neel Kashkari shared his thoughts on the state of the US economy, the current banking crisis and whether the US is headed for a recession in an interview with CBS News on Sunday.
When asked if the current banking crisis has pushed the US economy closer to recession, Kashkari replied:
It definitely brings us closer. For now, it’s unclear to us how much of this banking stress is leading to a widespread credit crunch.
“This credit crunch… would then slow down the economy,” he warned, noting that the Fed is monitoring the situation “very, very closely.”
“Such burdens could then lower inflation. So we have less work to do with the Federal Funds Rate to balance the economy,” Kashkari continued. “But right now it’s unclear how much of an impact these banking charges will have on the economy.”
Several major banks, including Silicon Valley Bank and Signature Bank, have failed in recent weeks, prompting the Federal Reserve, Treasury Department and the Federal Deposit Insurance Corporation (FDIC) to step in and protect depositors.
Kashkari was asked if more regulation was needed to prevent bank failures and if the FDIC deposit insurance should be raised above $250,000. He was also asked whether the 2018 rollbacks regulating mid-sized banks should be reintroduced. The 2018 Economic Growth, Regulatory Relief and Consumer Protection Act reversed some of the regulations introduced after the 2008 financial crisis.
The Fed official replied:
Well, we have fundamental problems, regulatory problems that our banking system is facing. I’ve argued for years that the world’s largest banks are still too big to fail.
Commenting on deposit outflows from smaller banks to larger institutions, the Fed Bank President commented: “The reason deposits are flowing to the big banks, the reason the Swiss government bailed out Credit Suisse is because the banks are taking this premium position and it is unfair.” He elaborated:
It’s an unfair playing field that puts tremendous pressure on regional banks and community banks, and that needs to be addressed. We need regional banks in America, we need community banks in America.
“Once we get through this period of stress, we need to come up with a regulatory regime that both ensures the soundness of our banking system and is fair and just so that community and regional banks can thrive. We don’t have that today,” Kashkari concluded.
Some people have called on the government to extend its bailouts to smaller banks. Billionaire Bill Ackman recently said, “We’re headed for a train wreck,” warning of lasting damage to smaller banks if the government allows the current banking crisis to continue.
What do you think of Federal Reserve Bank of Minneapolis President Neel Kashkari’s comments? Let us know in the comments section below.
Kevin Helms
As an Austrian economics student, Kevin discovered Bitcoin in 2011 and has been an evangelist ever since. His interests lie in Bitcoin security, open source systems, network effects and the interface between economics and cryptography.
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