Subject of Debate: Enact Glass-Steagall or Raise Banks’ Requirements?
June 13, 2016 (EIRNS)—This is the question posed by Christopher Wood, equity strategist at the Asia-based independent brokerage and investment firm, CLSA, in his weekly "Greed and Fear" newsletter.
It is also going to be the main topic of discussion at the third symposium on "Ending Too Big To Fail" in Washington, D.C. on June 20, sponsored by the Federal Reserve Bank of Minneapolis and the Peterson Institute. The seminar’s morning panel will review the "current framework used to evaluate proposals that increase capital requirements as a means of addressing TBTF." Neil Kashkari, head of the Minneapolis Fed, has organized these seminars.
Wood takes off from recent commentary by Federal Reserve Governors Daniel Tarullo and Jerome Powell, who warned that banks may have to greatly increase their capital requirements in order to prevent possible shocks. He argues that if there is going to be intensified regulation, why not just bring back Glass-Steagall? Deregulation only makes sense, he asserted, "if banks are allowed to fail, or at least bank bondholders are forced to lose money." That hasn’t been the case.
Wood charges that the "Davos mob" refuses to let capitalism work in banking. So,
"it follows logically that the business of deposit-taking should be separated completely from ‘investment banking’ using the term in its broadest sense, in what would amount to the reenactment of a modern Glass-Steagall."
Yet, he admonishes, regulators refused to take that "fundamental step," and instead, "keep adding on more and more rules."
According to www.kinston.com, Wood did not, however, propose that banks be broken up. Fed Governor Powell explained that the proposal to increase capital requirements is intended to force banks to the point where they, themselves, ask whether they are too big. Reporter Akin Oyedele notes that Wood
"sees a contradiction between more expensive regulation and the expectation that commercial banks should be freely engaged in volatile financial markets."