Federal Reserve: We Still Don’t Know How to Unwind Huge Financial Failures

In remarks by Federal Reserve Bank of Atlanta President Dennis Lockhart, he said regulators do not have a system in place that would allow orderly failures of the largest financial firms (NYSE:XLF) without taxpayer rescues.

Lockhart said in his speech:

“ The system we should work toward is one in which no institution is too big to fail,” Lockhart said today in a speech in Atlanta. “Much is being done in the aftermath of the Fed’s and the Treasury’s emergency interventions of 2008 to get to this state of affairs, but, in my view, this is a longer-term aspiration at this moment.”

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The Fed, along with other bank (NYSE:KBE) regulators, are working toward a solution that will avoid additional taxpayer-funded bailouts after the American International Group Inc. (NYSE:AIG) and Citigroup Inc. (NYSE:C) mishaps. One step to help the Fed has been last year’s passage of the Dodd-Frank Act; however, this is still a work in progress.

Financial stocks affected by Lockhart’s remarks include Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), JP Morgan (NYSE:JPM), Bank of America (NYSE:BAC), Citigroup (NYSE:C) and American International (NYSE:AIG).

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