Federal Reserve Bank of Minneapolis President Neel Kashkari says the ongoing banking crisis has pushed the US economy closer to recession. “We have fundamental issues, regulatory issues facing our banking system,” the Fed official emphasized.
Neel Kashkari on the US economy, the banking crisis and the 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 heading towards a recession in an interview with CBS News on Sunday.
Responding to a question about whether the ongoing banking crisis has pushed the US economy closer to recession, Kashkari said:
It definitely brings us closer. At this point, what is not clear to us is how much of these banking stresses are leading to a general credit crunch.
“That credit crunch… then it would slow down the economy,” he warned, noting that the Fed is monitoring the situation “very, very closely.”
“Such tensions could then reduce inflation. So we have to work less with the fed funds rate to balance the economy,” Kashkari continued. “But right now, it’s not clear what impact these banking tensions will have on the economy.”
Several major banks, including Silicon Valley Bank and Signature Bank, have failed in recent weeks, prompting the Federal Reserve, the Treasury Department and the FDIC to step in and protect depositors.
Kashkari was asked if more regulations are needed to prevent bank failures and if FDIC deposit insurance should be raised above $250,000. In addition, he was asked whether the 2018 setbacks in regulating midsize banks should be reinstated. The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 repealed some of the regulations that were put in place after the 2008 financial crisis.
The Fed official responded:
Well, we have fundamental problems, regulatory problems facing our banking system. I have argued for years that the biggest banks in the world are still too big to fail.
Commenting on deposit outflows from smaller banks to larger institutions, the Fed bank chair emphasized: “The reason why deposits flow to the big banks, the reason why the Swiss government bailed out to Credit Suisse, it’s because the banks have this premium position, and it’s unfair.” He elaborated:
It’s an unfair playing field that puts enormous pressure on regional banks and community banks, and that needs to be addressed. We need regional banks in the United States, we need community banks in the United States.
“Once we get over this period of stress, we need to come up with a regulatory system that ensures the soundness of our banking system, but is also fair and even, so that community banks and regional banks can thrive. We don’t have that today,” Kashkari concluded.
Some people have urged the government to extend its bailout to smaller banks. Billionaire Bill Ackman recently said, “We’re headed for a train wreck,” warning of permanent damage to smaller banks if the government allows the current banking crisis to continue.
What do you think of the statements by the president of the Federal Reserve Bank of Minneapolis, Neel Kashkari? Let us know in the comments section.
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