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The Fed: Fed’s Tarullo wants academics to focus more on bank liabilities rather than capital

Bloomberg News

Daniel Tarullo, left, and Jerome Powell, governors of the U.S. Federal Reserve, talk before the start of a meeting of the Board of Governors.

Academics at business and law schools should place more emphasis on the liability side of the balance sheets of financial firms, said Federal Reserve Gov. Daniel Tarullo on Friday.

“Traditional banking law casebooks gave some treatment to deposits and deposit insurance, which provided a good point in a course to engage students in moral hazard,” Tarullo said in a speech at Columbia Law School in New York.

“But the whole concept of runnable liabilities — whether uninsured deposits, repo, commercial paper, or other forms — was left largely untouched, even for commercial banks, much less for broker-dealers like Lehman Brothers or insurance holding companies like AIG,” he added.

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