thomas m hoenig : financial reform – post crisis? speech by mr thomas m hoenig, president of the federal reserve bank of kansas city, at women in housing and finance, washington dc, 23 february 2011. * * * thank you for inviting me here today to address this outstanding organization. it is my pleasure to do so. my remarks are entitled “ financial reform : post crisis? ” and will address financial regulatory reform and too big to fail. like most americans, i am a strong defender of free market capitalism and i ’ m here today to make an argument that our country should take the difficult steps required to move its financial industry back toward that system. i acknowledge that there is more than one view on this topic. there are those who believe we have made great strides with dodd - frank and if we implement it well, all will be fine. some believe that that the industry is over - regulated, which may be true, but we should not confuse over - regulated with well - regulated. and some of us are certain that in spite of all that ’ s been done and debated, the soundness of the largest financial institutions and the systemic risks they continue to pose is no better. in my view, it is even worse than before the crisis. as well - intentioned as the dodd - frank act may be, it will not improve outcomes. today i will describe why i believe that is the case and, more importantly, what must be done to give the united states a financial system that is healthy and competitive, and that supports rather than endangers the economy. there are many villains in the story of the recent crisis and much written to name them, describe them and even curse them. if you want to know how it happened, read “ thirteen bankers ” and “ all the devils are here. ” if you want to know how to fix the problem, i highly recommend “ regulating wall street, ” from new york university ’ s stern school of business. if you want to understand why the american public refuses to ignore the injustices associated with executive compensation in bailed out companies versus budget cuts borne by the middle class, read rolling stone ’ s article “ why isn ’ t wall street in jail? ” if you wonder why “ no one saw it coming ” then i suggest you read up on brooksley born or, a decade later, meredith whitney. or, you might even read the remarks of an iowa - educated bank regulator turned - policy maker in kansas

that adversely affects asset values. this work not only has improved our understanding of banks ’ individual risk profiles, it also has helped us better evaluate the potential effects of financial disruptions in europe on credit flows and economic activity in the united states. macroprudential considerations are being incorporated into the development of new regulations as well as into supervision. for example, in december, the federal reserve issued a package of proposed rules to implement sections 165 and 166 of the dodd - frank act. the rules would establish prudential standards for the largest bank holding companies and systemically important nonbank financial firms, standards that become more stringent as the systemic footprint of the firm increases. we are also collaborating with the federal deposit insurance corporation ( fdic ) and foreign authorities to help implement the fdic ’ s new resolution authority for systemically critical firms. in particular, last fall we issued a joint rule with the fdic that requires each of these firms to produce a credible plan – known as a living will – for an orderly resolution in the event of its failure. in the international arena, we strongly supported the basel committee ’ s adoption in the summer of 2009 of tougher regulatory capital standards for trading activities and securitization exposures. we have also worked closely with international partners to help develop the basel iii framework, which requires globally active banks to hold more and higher - quality capital and larger liquidity buffers, and which now incorporates a provision to impose capital surcharges based on firms ’ global systemic importance. these surcharges are intended to reduce the risk of failure of systemic firms and also to force these firms, in their decisions regarding their size and complexity, to internalize the possible costs that those decisions might impose on the broader economic and financial system. the purpose of each of these steps is to improve the traditional prudential regulation of systemically for more information, see board of governors of the federal reserve system ( 2012 ), “ federal reserve releases paper describing methodology used in 2012 comprehensive capital analysis and review stress test, ” press release, march 12 ; and board of governors of the federal reserve system ( 2012 ), “ federal reserve announces summary results of latest round of bank stress tests, ” press release, march 13. bis central bankers ’ speeches important firms while fostering greater stability and resilience in the banking system as a whole. nonbank financial firms gaps in the regulatory structure, which allowed some systemically important nonbank financial firms to avoid strong, comprehensive