"Obama Accepts Volcker’s Approach, Proposes Bank Limits In ‘The Spirit Of Glass-Steagall’"
Today, the Obama administration plans to announce new limits on the size and risk-profile of banks, implementing what one White House aide called “the spirit of Glass-Steagall,” which was the Depression-era law that separated investment and depository banking.
As the New York Times put it, “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.” For months, Volcker has been calling for dividing the riskier trading portions of banks from those that deal with insured deposits. And that seems to be the main focus of the administration’s plan:
If the proposal took effect, big banks could be forced to wall off certain activities in their investing banking units — which trade and underwrite securities and make their own bets on markets — from their traditional businesses, which make loans and take deposits…The rules could also keep banks out of the business of running hedge funds, investing in real estate or private equity.
The upshot of the announcement is that banks will no longer be able to gamble with customers’ money that is federally insured. According to the Wall Street Journal, the policy “could have the biggest effect on Bank of America Corp., Wells Fargo & Co., and J.P. Morgan Chase & Co., which control a large amount of U.S. deposits.” The administration’s move coincides with its push to implement a bailout levy on the nation’s biggest banks.
This shift — while right from a policy standpoint as well — is pretty clearly a response to the charge that it is too cozy with the banks. As I pointed out yesterday, poll after poll shows that the administration is seen as offering too much support for Wall Street, and doing to little to improve the economic standing of low- and middle-class Americans. As Salon’s Andrew Leonard put it, “the decision to take a more aggressive stance against Wall Street marks a clear shift in tone, an abandonment of cautious accommodation [with Wall Street] in favor of out-and-out confrontation.”
The administration said that it plans to “work closely with the House and Senate to work this into legislation moving on the Hill.” Of course, we won’t know the true effectiveness of these proposals until more details come out, but you can be sure that, whatever they are, Wall Street will hate the whole thing, and will do all it can do prevent these measures from taking effect.
But this is an issue on which there should be no watering down. If Republicans want to stand in the way and be on the side of the big Wall Street banks, I say let them. As Paul Krugman wrote, “make them vote against it…Take on the banks — and force those who are covering for them into the open.”