WASHINGTON (MNI) – The following is the text of a release from the
Federal Reserve Bank of Dallas with comments by its President Richard
Fisher, following the publishing of its 2009 Annual Report Monday:

Effective monetary policy hinges on the Federal Reserve retaining
its bank regulatory role and its independence from political pressures,
says Federal Reserve Bank of Dallas President and CEO Richard W. Fisher
in the Bank’s 2009 Annual Report.

The breakup of too-big-to-fail (TBTF) banks and improved financial
regulation are also vital to continued American prosperity, Fisher
states.

The 2009 Annual Report can be found at:

http://www.dallasfed.org/fed/annual/2009/index.cfm

“An independent Fed, equipped with the authority to responsibly
execute monetary policy and aided by a strong supervisory and regulatory
arm, is the most effective weapon we have to meet the need for increased
stability and contain the dangerous spillovers that threaten the economy
in periods of distress,” Fisher writes.

Independence from short-term, political impulses allows the Fed to
focus on crafting the right mix of policies and to serve as a tougher
regulator, Fisher says.

He also asserts that monetary policy and regulatory functions are
symbiotic. By establishing rules for sound banking practices and making
sure that banks follow them, financial regulation keeps the arteries of
the financial system open.

Fisher argues the Fed should not only maintain, but also enhance
its role in banking and financial regulation. An expanded Fed role in
regulating nonbank financial institutions — the shadow banking system
— is worth discussing, Fisher says.

Fisher favors an international accord to break up TBTF institutions
into a size more manageable for the bank’s executives and regulatory
supervisors.

“The time to break up TBTF banks is before the crisis — when the
economy is relatively healthy and they pose no immediate dangers,” he
writes. “That way, they will not be around to wreak havoc when the
economy enters a period of stress.”

New regulatory rules should clamp down on excessive risk taking,
Fisher states.

“An effective regulatory regime strives to corral the financial
markets’ animal spirits in a way that does not inhibit the vital work of
underwriting prosperity but discourages straying into yet another
reckless escapade — a delicate balance indeed,” Fisher says.

** Market News International Washington Bureau: 202-371-2121 **

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