By Jonathan Weber
ASPEN, Colorado June 28 Large financial firms
that have grown even bigger since the financial crisis earn
backdoor government subsidies because of a perception that they
will be bailed out, a Federal Reserve official said on Thursday.
This offers these big banks lower borrowing costs and a leg
up over smaller competitors, said Dallas Fed President Richard
Fisher, who has repeatedly called for breaking up institutions
seen as too big to fail.
"It's an unfair subsidy," he said during a
question-and-answer session at the Aspen Ideas Festival. "They
have a funding preference."
While he did not single out specific firms, Fisher was
responding to a question about JP Morgan's massive recent
trading loss, which is now estimated to range between $4 billion
and $6 billion.
On the subject of monetary policy, Fisher, an anti-inflation
hawk, reiterated his opposition to the Fed's most recent effort
to keep long-term borrowing costs low, known as Operation Twist.
Fisher said he is concerned that the central bank's bloated
balance sheet, which now stands at around $2.9 trillion, could
complicate an eventual exit from a highly supportive monetary
He said a lack of monetary stimulus was not the problem
facing a "painfully slow" economic recovery. "There's plenty of
liquidity out there," Fisher said. "Why isn't it being put to
He blamed uncertainty about the course of fiscal policy,
saying: "When you have maximum uncertainty you go into a
Fisher is not a voter this year on the policy-setting
Federal Open Market Committee, but he has not been shy about
dissenting in the past when he did have a voting seat.
Many economists believe fresh signs of weakness in the U.S.
economy, including weaker job growth, will drive the Fed to a
third round of bond purchases or quantitative easing, also known
as QE3. U.S. gross domestic product expanded just 1.9 percent in
the first quarter, a level seen as too soft to bring down the
nation's 8.2 percent jobless rate.
In response to the severe financial crisis and recession of
2008-2009, the Fed not only slashed interest rates to
effectively zero but also bought mortgage and Treasury bonds to
keep long-term rates down.
Part of that effort was aimed at reviving a moribund housing
market, which only now is slowly beginning to recover from a
slump lasting more than five years. Still, Fisher said he was
encouraged by recent figures.
"I think the housing market has bottomed out," he said.