Bank Reforms: A second Edition
Paul Volcker has new risk limits
After the treasury induced reforms that were more a laundry list of all measures, with existing internal controls at banks pushed into the open, in the next round against criminal misuse of the monetary and fiscal basis, Obama leaned towards Paul Volcker to introduce risk based limits for the Treasuries at commercial and investment banks. Goldman Sachs has already brought leverage down to 4.42 times net worth during the upheavl of 2009.
In an interview with ABC on Wednesday Mr Obama characterised the move by saying that the administration was about to get into a “big fight with the banks.”
“We’ve got a financial regulatory system that is completely inadequate to control the excessive risks and irresponsible behaviour of financial players all around the world,” he said.
“People are angry and they’re frustrated. From their perspective, the only thing that happens is that we bail out the banks… We’re about to get in a big fight with the banks.”
An administration official on Wednesday said the plan – in discussion for the last couple of months – was born out of a need to “cut down on excessive risk taking”.
The announcement is likely to stop short of the return to a forced separation between riskier investment banking and the utility functions of retail and commercial banking that was enshrined in the Glass-Steagall Act.
Goldman Sachs – which runs a large proprietary trading business and which reported stronger than expected fourth-quarter profits on Thursday – will be watching the details closely, but the measures are more likely to threaten institutions whose operations are large and span commercial and retail operations as well as trading for their own benefit.
“While the financial system is far stronger today than it was a year one year ago, it is still operating under the exact same rules that led to its near collapse,” said President Barack Obama at the White House.
“My resolve to reform the system is only strengthened when I see a return to old practices at some of the very firms fighting reform; and when I see record profits at some of the very firms claiming that they cannot lend more to small business, cannot keep credit card rates low, and cannot refund taxpayers for the bailout. It is exactly this kind of irresponsibility that makes clear reform is necessary,” Obama added.
The proposal aims to deter commercial banks from becoming so large that they put the broader economy at risk and distort normal competitive forces
Posted on January 22, 2010, in Bank Stocks, Financial Markets, O'nomics, Obamanomics, TARP, US and tagged Bank REforms, Banking, Banks, Financial Crisis, Reforms, TARP. Bookmark the permalink. Leave a comment.