Financial Reform 101

Let’s face it: Financial reform is a hard issue to follow. It’s not like health reform, which was fairly straightforward once you cut through the nonsense. Reasonable people can and do disagree about exactly what we should do to avert another bank...

'Even among those who really do want reform, however, there’s a major debate about what’s really essential. One side — exemplified by Paul Volcker, the redoubtable former Federal Reserve chairman — sees limiting the size and scope of the biggest banks as the core issue in reform. The other side — a group that includes yours truly — disagrees, and argues that the important thing is to regulate what banks do, not how big they get.'

"So why not update traditional regulation to encompass the shadow banks? We already have an implicit form of deposit insurance: It’s clear that creditors of shadow banks will be bailed out in time of crisis. What we need now are two things: (a) regulators need the authority to seize failing shadow banks, the way the Federal Deposit Insurance Corporation already has the authority to seize failing conventional banks, and (b) there have to be prudential limits on shadow banks, above all limits on their leverage."

The above is the argument. How does your comment fare?

Financial Reform 101

"Breaking up big banks wouldn’t really solve our problems, because it’s perfectly possible to have a financial crisis that mainly takes the form of a run on smaller institutions." Hold on ... we now have the FDIC which makes a run very unlikely. I think the proponents of breaking up the banks recognize that that it is the systemic risks that big banks pose that presents the risks. In other words, how much do we want to risk in the event that bank executives and regulators fail? The larger the institution the more risk. So it is a question of drawing a line. And, I think, once a institution grow so large that the risk it poses to a society from its failure are not justified by the benefit it presents to society, that line should be drawn. On the issue of small bank failures, remember that every week the FDIC takes over small banks without ANY market implications.

Not real well. The bailout provision takes care of his worry and he does not deal with other regulation.

We could, of course do both and that would not be a bad thing.

Moves to Garnish Pay Rise as More Debtors Fall Behind

But we don't need a consumer protection agency like Obama would like to see, right banking industry? You guys can police yourselves, right? Right?