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The Federal Reserve recently announced a number of new regulations that it says will tame risk-taking by major U.S. financial institutions. The regulations -- which are part of the Dodd-Frank legislation -- propose stiffer capital and liquidity rules and stress tests for banks with more than $50 billion in assets.
But Christopher Whalen, Senior Managing Director at Tangent Capital Partners, tells BNN these regulations will fail in their quest to tame the banking sector.
"We keep coming back with these layers and layers of regulation and compliance and risk management, but I'm not even sure that enterprise risk management is possible when you have banks this large and this complex," he says. "I'm not sure at the end of the day if we are making these banks safer and sounder. I think we would be better off breaking them up into smaller pieces -- that would be a step forward in terms of risk management."
Whalen says history has shown us that banks are excellent are finding ways around new regulations.
"What we've learned over the last ten to 50 years in this country is that banks always find a way around regulation," he says. "You give them five or ten years after the passage of Dodd-Frank and enough lawyers and they'll find a way around whatever regulatory systems the Fed puts in place."