FORT WORTH -- The nation's biggest banks are getting so huge that their top managers can lose track of what's happening floors below them, Richard Fisher, president of the Federal Reserve Bank of Dallas, said Friday.
His comment was in response to a question about the $2 billion trading loss disclosed by JPMorgan Chase late Thursday. He prefaced his remarks by saying he wasn't speaking about a specific institution."At what point do you reach a size you don't know what is going on beneath you? And if you get to that point, you're too late," Fisher said after a morning speech to the Texas Bankers Association meeting at the Fort Worth Convention Center. "What I am very worried about is that you can reach a size of complexity that risk management becomes a mathematical modeling exercise and you lose touch with your customer," Fisher told his audience.He criticized preferential treatment that large banks receive when borrowing from the nation's central bank, because it creates the implication that when something goes wrong, they are too big to fail. Meanwhile, he said, regional banks "are too small to save.""This to me is not the American form of capitalism," he said.Fisher referred to the Dallas Fed's annual report, issued in March, which called for scaling back mammoth banks.The main article by the bank's director of research, Harvey Rosenblum, concludes, "The ultimate destination -- an economy relatively free from financial crises -- won't be reached until we have the fortitude to break up the giant banks."Fisher said: "We realize our approach is radical. We are calling for a significant downsizing of institutions. It's not the perfect outcome. It's the least worst outcome."Large banks weren't his only target.Fisher called Congress "incompetent" for failing to come up with practical fiscal policies, a lapse that would leave two generations carrying the debt burden. He blamed both parties for the situation.The sole historical difference between them, Fisher quoted a researcher once telling Treasury Secretary George Shultz, was that Democrats enjoyed spending more than Republicans did."We at the Dallas Fed don't believe the so-called Dodd-Frank Act is the answer to the problem," Fisher said. That financial reform legislation, passed in 2010 after the financial crisis, is far too complicated, he said.The only upside, he joked, is that Americans are dealing with only one unworkable government, while euro-currency countries are stuck with 17.During his speech, Fisher told the bankers that Texas-based banks outperformed the nation with a return on assets last year of 1.1 percent, compared with 0.9 percent for the country as a whole."This is pretty good performance, considering what the industry recently went through," he said. It was the fifth consecutive year the state did better than counterparts nationwide.And at the height of the crisis in 2009, "Texas banks earned a profit of $1.4 billion while the entire U.S. banking industry lost $11.5 billion."The reason Texas lenders outperformed last year, he said, is that the noncurrent loan rate was 2.4 percent, down from 3.1 percent in 2010, compared with a national rate of 4.1 percent and 4.9 percent, respectively. Charge-offs were 0.7 percent of all loans in Texas in 2011, compared with 1.6 percent nationwide.Barry Shlachter, 817-390-7718Twitter: @startelegramHave more to add? News tip? Tell us
