Introduction

In 2011, with significant input from others at the Federal Reserve Bank of Kansas City, I proposed that the U.S. financial system be restructured by business lines with accompanying money market reforms. Since then, I often have been asked why I think there is any stomach for a modern version of Glass-Steagall or any other major financial reform when Dodd-Frank has not yet been fully implemented.

I recognize that enactment of such a proposal [1] is no simple task, but doing so will reduce the subsidy for too-big-to-fail firms and better align their economic incentives and rewards. Importantly, a return to a more accountable financial system is an essential step if we expect to rebuild public trust in our financial institutions and in the government that regulates them. That trust can be reestablished and accountability can be put back into the system so that the banking industry can win without the rest of us losing.

It is well understood that our country faces many challenges that are beyond the financial system. Post financial crisis, the United States faces an expanding fiscal challenge that will affect future discussions on tax structure and spending priorities. We cannot hope to find meaningful solutions or common ground to work from regarding these challenges if the public fails to trust its financial and governmental institutions. Who will agree to make sacrifices for the good of the country if they judge that reforms will be poorly or unfairly applied? How can we possibly convince Americans that the fiscal steps will be equitable when we bailed out the largest banks and yet they remain — larger, more powerful, and insulated from the market’s discipline?

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