Most regulatory reform initiatives applied since the Banking Act of 1864 have missed the mark. They looked good on paper and appeared to solve the problems of the day but later proved not up to the task. This is especially true with efforts to solve the “too big to fail” problem, in which an unwillingness to follow through on prior policy commitments to actually close down large failures and impose losses on their uninsured creditors has led to what economists call “time inconsistency” in policy. Let’s hope this time will be different, that regulators will make their commitments credible and consistent with future rather than past needs.6 Having come from the financial industry, I take a keen interest in these issues, and I hold some strong opinions as to how we should proceed. I believe there are leverage points for effective reform. There are areas where, if regulators act decisively, they might have profound positive effects and avoid time inconsistency. Conversely, there are other areas where regulatory action would at best generate small benefits and, in the worst case, might actually be counterproductive. 5  See “Regulating Systemically Important Financial Firms,” address by Governor Daniel K. Tarullo at the Peterson Institute for International Economics, June 3, 2011. 6  See “Financial Reforms or Financial Dementia,” keynote address by Richard W. Fisher to the Southwestern Graduate School of Banking, June 3, 2010.
Richard W Fisher: Containing (or restraining) systemic risk – the need to not fail on “too big to fail” Remarks by Mr Richard W Fisher, President and Chief Executive Officer of the Federal Reserve Bank of Dallas, before the Market News International Seminar, New York, 6 June 2011. *  *  *  The views expressed by the author do not necessarily reflect official positions of the Federal Reserve System. Thank you for that kind introduction. This discerning audience no doubt noted that despite being overeducated, I am not a formally trained economist. I do not have a Ph.D. in economics; those who do will correctly deduce that I am somewhat “dismal” in comprehending the arcana of “the Dismal Science.” After my undergraduate education in economics and my studies at Oxford, I took a different path. I earned an MBA and then went to Wall Street and into funds management before cashing out and taking to public service. My perspective on monetary policy and regulation is shaped less by theory and more by my experience as a market operator. I confess that in matters of monetary policy and regulation, I am often in the minority. This does not make me the least bit uncomfortable. The majority opinion is not always right; indeed, my experience as an investor has biased me to conclude that more often than not, the consensus view is the wrong view, even among the most erudite.