NEW YORK (CNNMoney.com) - Former Federal Reserve Chairman Paul Volcker said Thursday that more needs to be done to regulate the financial system before the lessons of the recent crisis are forgotten.
"We must not shrink away from change but accept the need for basic financial reform," said Volcker, currently chairman of President Obama's Economic Advisory Board, in remarks to the Economic Club of New York.
He said the economy appears to be growing slowly, and that the financial crisis is beginning to seem to some like a "bad dream."
But the magnitude of the crisis showed that the underlying problems are "more fundamental" and require "broad reform" of the financial system, he warned.
The former Fed chairman said the central bank should play a key role in overseeing the financial system. Among his ideas, he said the Fed should have the power to dismantle big banks that pose a systemic risk to the economy.
"The old question (about banks) colloquially described as 'too big to fail' looms larger than ever," Volcker said.
In a response to recent criticism of the Fed, he said the central bank is less subject to political pressure than other regulatory bodies.
"These days, best-selling books remind us that the challenges to that structure, and particularly to the Fed's insulation from political pressure, arise from time to time," Volcker said, referring to a popular book by Rep. Ron Paul, R-Texas.
"The sense of anger about the amount of funds required to bail out both institutions and markets is palpable," he added. "But that truly exceptional response to the financial crisis - drawing on long-dormant emergency powers - was a properly coordinated decision with the administration, not a misuse of independent authority."
The remarks came on the same day that President Obama called on Congress to tax the largest banks to ensure that U.S. taxpayers don't lose a penny from the federal bailout of the financial, auto and insurance industries over the past year.
Volcker said the proposed tax "seems to me to be a not unreasonable response." He said the banks subject to the tax have benefitted from taxpayer aid and "should carry their share of the burden."
The proposed "financial crisis responsibility fee" is aimed at large institutions that received significant federal aid during the height of the crisis, but have since recovered and are now poised to pay tens of billions of
dollars in bonuses.
On Wednesday, four top bank chief executives went before a panel to answer questions about the role their institutions played in causing one of the worst financial shocks in a generation.
The CEOs of Goldman Sachs, Morgan Stanley, J.P. Morgan Chase and Bank of America told the Financial Crisis Inquiry Commission that they made mistakes but didn't realize how bad they were at the time.
Finally, someone talking sense. Have a nice day!
“more needs to be done to regulate the financial system.” In other words, stop voting for Republicans who continue to poke needles trying to revive Voodoo Economics. Americans have had enough of Reagan / Bush economics and will never fall for it again because of the rule, “Fool me once, shame on — shame on you. Fool me — you can't get fooled again.” George W. Bush.
Mr. Volker knows exactly what he's talking about. I'm sticking w/ this administration through thick and thin.........we're going to be fine America.......wait and see.
it is going to be very difficult to have effective over-site and real regulation now after the bush free- for- al with no regulation on anything..
i think the pot is calling the kettle black, somebody needs to reform congress....
GOOD idea Volker...
Tell that to Barack and tell that to BARNEY FRANK and Chris Dodd.
They claimed the republicans were like chicken little claiming the sky was falling. They REFUSED to get their arms around the mortgage crisis. THEY CAUSED the mortgage crisis.
Tell the dems that you cant just give out free loans to people that cant afford it.
There still needs to be some significant reform of the credit card industry, as well.
The banks are using the time before the "new rules" take effect, to rip off the consumer, big time, with interest rates on credit cards, as high as 79%, being reported.
They will make all their changes before the deadline passes, and then the changes will be, for all practical purposes, totally negated. Big deal, Congress. Thanks for nothing.