Nearly a year ago I wrote my first article (Why banks need to become like utility companies) on the need to reinstate Glass-Steagall rules which separate risky investment banking from bread and butter consumer/commercial banking. I also noted in my November article (Is Congress ignoring golf advice from Tiger Woods?) that the idea was being pushed by Paul Volcker, the legendary Fed Chairman, but largely being ignored by Congress.
Today, President Obama held a news conference announcing his push to ban banks from investing their own money in risky hedge funds, private equity and the like. He also wants to limit the size of banks so our financial system is no longer forced to bail out banks that are "too big to fail" without cratering the economy and banking system. He casually refers to his proposal as the "Volcker rule." It's simple, straightorward and it makes a lot of sense. It's worth watching the 3-minute video clip of the news conference below from the Wall Street Journal.
The attacks on this proposal were immediate. Opposers say it's political, divisive, self-destructive, anti-business and retaliatory against banks. Whatever agenda drives these comments, the fact is that banks operated just fine between 1933 and 1998 when Glass-Steagall was in effect. Many banking regulations evolved over that period of time, but the inherent safety of commercial/consumer banking remained intact.
You might argue my point by bringing up the savings and loan crisis of the 1990's, but S&L's were regulated separately from banks, and their collapse came on the heels of their own deregulation, lax accounting rules and an expansion of risky business practices. Indeed, we should look at both the S&L crisis and the recent banking crisis as justification for heeding Mr. Volcker's advice.
Paul Volcker has never hinted of any political aspirations, and at age 82, I doubt he does. I applaud this move by the administration and hope it leads to real changes to protect the global economy from future collapses. Keeping the banking system healthy benefits everyone - liberals and conservatives, rich and poor, corporations and non-profits.