New regulations: Cutting banks down to size
President Obama has proposed limiting the size of banks and resurrecting the long-standing separation between commercial and investment banking.
It’s the end of “too big to fail,” said Felix Salmon in Reuters. In an attempt to prevent a repeat of 2008’s meltdown of the banking and financial industries, President Obama has proposed a new set of regulations that would limit the size of banks and bar them from “gambling” on risky investments. The new proposal, which Obama announced with the august Paul Volcker, former chairman of the Federal Reserve, at his side, would impose limits on the size of banks, by restricting the amount of liability they could take on. It would also resurrect the long-standing separation of commercial banking, where profits are derived from interest on loans, from much riskier investment banking, in which institutions “gamble” on hedge funds and other speculative investments. Obama said his plan, which is being submitted to Congress, would prevent banks that receive federally insured deposits from taking “huge, reckless risks in pursuit of quick profits and massive bonuses.”
Is that “the stench of cheap populism” that we detect? said National Review Online in an editorial. Now that the public is angry with Obama, “he wants people to know he’s angry, very angry, at Wall Street.” But it won’t be long before banks will invent new ways to circumvent any new prohibitions on risky trading. The fundamental problem that Obama’s proposal doesn’t address, said Sebastian Mallaby in The Washington Post, is that bankers know that the government won’t let them go bankrupt. “Armed with an implicit government guarantee,” they will always take on unwise risks, knowing that when they win their bets, “the profits go to bankers and their shareholders.” When they bet wrong, taxpayers absorb the losses.
Another round of bank-bashing will serve no one, said Judah Kraushaar in The Wall Street Journal. Right now, banks are still loaded with “problem assets,” and in an uncertain political and regulatory climate, are reluctant to make loans. “Piecemeal” regulations and “sporadic attacks on bank compensation” will only lead to more paralysis. What bankers need most of all is “clarity.” Here’s some clarity, said Megan McArdle in TheAtlantic.com. It was a “gigantic mistake” for banks to announce “huge profits and big bonus pools” so soon after being bailed out by struggling taxpayers. That little bit of arrogance guaranteed a backlash, and for good or for ill, it’s now underway.
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
![https://cdn.mos.cms.futurecdn.net/flexiimages/jacafc5zvs1692883516.jpg](https://cdn.mos.cms.futurecdn.net/flexiimages/jacafc5zvs1692883516-320-80.jpg)
Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
Sign up for Today's Best Articles in your inbox
A free daily email with the biggest news stories of the day – and the best features from TheWeek.com
Create an account with the same email registered to your subscription to unlock access.
-
Why is China stockpiling resources?
The Explainer The superpower has been amassing huge reserves of commodities at great cost despite its economic downturn
By Richard Windsor, The Week UK Published
-
Paraguay's dangerous dalliance with cryptocurrency
Under The Radar Overheating Paraguayans are pushing back over power outages caused by illegal miners
By Chas Newkey-Burden, The Week UK Published
-
The Week contest: Tattoo prediction
Puzzles and Quizzes
By The Week US Published
-
How could J.D. Vance impact the special relationship?
Today's Big Question Trump's hawkish pick for VP said UK is the first 'truly Islamist country' with a nuclear weapon
By Harriet Marsden, The Week UK Published
-
Biden, Trump urge calm after assassination attempt
Speed Reads A 20-year-old gunman grazed Trump's ear and fatally shot a rally attendee on Saturday
By Peter Weber, The Week US Published
-
Supreme Court rejects challenge to CFPB
Speed Read The court rejected a conservative-backed challenge to the way the Consumer Financial Protection Bureau is funded
By Peter Weber, The Week US Published
-
Arizona court reinstates 1864 abortion ban
Speed Read The law makes all abortions illegal in the state except to save the mother's life
By Rafi Schwartz, The Week US Published
-
Trump, billions richer, is selling Bibles
Speed Read The former president is hawking a $60 "God Bless the USA Bible"
By Peter Weber, The Week US Published
-
The debate about Biden's age and mental fitness
In Depth Some critics argue Biden is too old to run again. Does the argument have merit?
By Grayson Quay Published
-
How would a second Trump presidency affect Britain?
Today's Big Question Re-election of Republican frontrunner could threaten UK security, warns former head of secret service
By Harriet Marsden, The Week UK Published
-
'Rwanda plan is less a deterrent and more a bluff'
Instant Opinion Opinion, comment and editorials of the day
By The Week UK Published