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Thomas Hoenig, director of the Federal Deposit Insurance Corp., said it's time to narrow the definition for what type of financial institutions end up with implied government backing and return to a banking system where companies cannot rely on over leverage while expecting aid in cases of distress.
"We must narrow the safety net and confine it to the payments system, deposit taking and the related intermediation of deposits to loans," Hoenig said. "We must simplify and strengthen the capital standards and then subject all banks to the same standard of measurement and performance."
Hoenig made these statements in New York Friday while speaking at the AICPA/SIFMA FSA National Conference.
Hoenig already see leverage becoming a problem again and notes the implied safety net of central bank aid and bailouts is re-emerging, creating risk of future problems that could leave the public left holding the bag once more.
"First, we must change the structure of the industry to ensure that the coverage of the safety net is narrowed to where it is needed, and stop the extension of its subsidy to an ever-greater number of firms and activities," Hoenig said.
He also wants to simplify and strengthen capital standards and incorporate a more "rigorous examination" of big banks and bank holding companies.
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