Size of too-big-to-fail problem needs broad tracking -Fed's Kocherlakota


By David Bailey

MINNEAPOLIS, Nov 18 (Reuters) - A top U.S. central banker onMonday urged fellow regulators to use an array of measures todetermine the size of the so-called too-big-to-fail problem, inwhich investors assume that large banks will receive agovernment bailout if they run into trouble.

In a speech, the president of the Minneapolis FederalReserve Bank, Narayana Kocherlakota, did not comment on monetarypolicy or the U.S. economy. Instead he addressed a problem thatcontinues to hamper financial regulators like the Fed five yearsafter the worst of the financial crisis.

The U.S. government in 2008 provided funds to help JPMorganChase & Co acquire floundering investment bank BearStearns, and the government itself took on the troubled assetsof the giant insurer AIG, sowing the seeds of theproblem.

While JPMorgan, Citigroup Inc and other Wall Streetbanks now have to hold more capital to protect against lossesthan before the crisis and must plan ahead for possiblebankruptcies, they still enjoy a too-big-to-fail "subsidy" thatregulators worry allows them to borrow at cheaper rates thanwould otherwise be the case.

Many institutions have tried to measure that subsidy but, asKocherlakota said in remarks prepared for delivery on Monday,those measures are imperfect.

"Rather than using no measures, policymakers should betracking all measures that are viewed as being at least somewhatinformative about the size of the subsidy," Kocherlakota said inthe remarks to be delivered to a conference hosted by his Fedbank on quantifying the too-big-to-fail subsidy.

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