The dangers posed by TBTF banks are too great. To be sure, having a clearly articulated “resolution regime” would represent steps forward, though I fear they might provide false comfort in that a special resolution treatment for large firms might be viewed favorably by creditors, continuing the government-sponsored advantage bestowed upon them. Given the danger these institutions pose to spreading debilitating viruses throughout the financial world, my preference is for a more prophylactic approach: an international accord to break up these institutions into ones of more manageable size—more manageable for both the executives of these institutions and their regulatory supervisors. I align myself closer to Paul Volcker in this argument and would say that if we have to do this unilaterally, we should. I know that will hardly endear me to an audience in New York, but that’s how I see it. Winston Churchill said that “in finance, everything that is agreeable is unsound and everything that is sound is disagreeable.” I think the disagreeable but sound thing to do regarding institutions that are TBTF is to dismantle them over time into institutions that can be prudently managed and regulated across borders. And this should be done before the next financial crisis, because it surely cannot be done in the middle of a crisis.

I think, agree that we don't want banks to take excessive risks when they have a safety net from the government, so the question is how do you control those risks?

The Volcker rule might be appropriate. You have to be careful that you don't inadvertently, for example, prevent a good hedging, which actually reduces risk, or that you don't prevent market making, which is good for liquidity.

One possibility is that, if you were to go in this direction, would be to give some discretion to the supervisors to decide whether a set of activities is so risky or complex that the firm doesn't have the risk management capacity or the managerial capacity to deal with it and then give the supervisor the authority to ban that activity. So there might be ways to do it using supervisors.

In response to a question about the Volcker rule during the Q&A session

Similarly, every banker I speak with knows very well what “proprietary trading” means and implies. My understanding is that only a handful of large commercial banks – maybe four or five in the United States and perhaps a couple of dozen worldwide – are now engaged in this activity in volume. In the past, they have sometimes explicitly labeled a trading affiliate or division as “proprietary”, with the connotation that the activity is, or should be, insulated from customer relations.