Thursday, January 21, 2010

Obama to Limit Bank Sizes

From the NY Times:

President Obama on Thursday will publicly propose giving bank regulators the power to limit the size of the nation’s largest banks and the scope of their risk-taking activities, an administration official said late Wednesday.


The president, for the first time, will throw his weight behind an approach long championed by Paul A. Volcker, former chairman of the Federal Reserve and an adviser to the Obama administration. The proposal will put limits on bank size and prohibit commercial banks from trading for their own accounts — known as proprietary trading.


Only a handful of large banks would be the targets of the proposal, among them Citigroup, Bank of America, JPMorgan Chase and Wells Fargo. Goldman Sachs, the Wall Street trading house, became a commercial bank during this latest crisis, and it would presumably have to give up that status.

“The heart of my argument,” Mr. Volcker said, “is who we are going to save and who we are not going to save. And I don’t want to save what is not at the heart of commercial banking.”

I wrote the following a few weeks ago:

Regarding wall street firms, you have two choices:

1.) Allow big institutions to exist, but regulate them with a regulator who has teeth and is willing to use its teeth.


2.) Reinstate Glass Steagall

It looks like the administration is going after number 2. Let's see if they actually do something or if the idea gets killed in Congress.