Long experience, in the United States and in other advanced economies, has demonstrated that monetary policy is most successful when decisions are rendered independent of influence by elected officials.
Jerome PowellRead
It is worth noting that 'too big to fail' is not simply about size. A big institution is 'too big' when there is an expectation that government will do whatever it takes to rescue that institution from failure, thus bestowing an effective risk premium subsidy. Reforms to end 'too big to fail' must address the causes of this expectation.
Interpretation
What this quote means
The concept of 'too big to fail' suggests that some institutions are protected from failure due to government intervention, necessitating reforms to change this expectation.
Jerome Powell emphasizes that the term 'too big to fail' goes beyond just the size of an institution; it reflects the belief that the government will intervene in crises to save certain large institutions, which creates a risk premium. To effectively address this issue, there must be reforms that tackle the fundamental reasons why this belief exists, ensuring that all institutions are held accountable for their risks and failures.
Themes
Too Big To FailGovernment InterventionFinancial ReformRisk PremiumInstitutionEconomics
In practice
Example use cases
This quote can be used in a financial seminar discussing the implications of government policies on large institutions.
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Long-term economic growth depends mainly on nonmonetary factors such as population growth and workforce participation, the skills and aptitudes of our workforce, the tools at their disposal, and the pace of technological advance. Fiscal and regulatory policies can have important effects on these factors.
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There is no risk-free path for monetary policy.
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My own experience is that the best outcomes are reached when opposing viewpoints are clearly and strongly presented before decisions are made.
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