Monetary Policy And Ending Too-Big-To-Fail

Monetary Policy And Ending Too-Big-To-Fail

My successor as Minneapolis Fed President, Neel Kashkari, gave his first speech in his new role today.   I congratulate him on a well-worded and stimulating set of remarks.  He argued passionately in favor of imposing much tighter restrictions on the nation’s largest financial institutions, including possibly requiring them to hold a lot more capital or breaking them up.

In this post, I’ll comment on two monetary policy aspects of his proposals.   The first is how they would interact with the effective lower bound on nominal interest rates.  The second is that monetary policymakers need to get even better at “cleaning up” after crises, given how hard crises are to prevent.

My first comment is that...