Should Commercial Banking And Investment Banking Again be separated ?

[GAROVORKIN]

The Glass Steagall Act of 1932  separated both. meaning a bank could be one or the other but not both. It was thought that  this would in theory minimize the possibleilbiy of there  being another financial meltdown like the Great Depression Depression. In 1999 the Gramm -Leach-Bliley Act  1999  changed this and allowed banks to again do both Commercial and investment Banking under the same roof.  Do you think that these they should again separate the two types of banking ?

Thoughts? 

 

[GAROVORKIN]

Given the financial meltdown we had back 2008 and the possibility that it might reoccur again.

[Hereward]

Britain has already done this, though they have until 2019 to complete the reorganisation.

[OldGimletEye]

On 11/4/2017 at 7:11 PM, GAROVORKIN said:

The Glass Steagall Act of 1932  separated both. meaning a bank could be one or the other but not both. It was thought that  this would in theory minimize the possibleilbiy of there  being another financial meltdown like the Great Depression Depression. In 1999 the Gramm -Leach-Bliley Act  1999  changed this and allowed banks to again do both Commercial and investment Banking under the same roof.  Do you think that these they should again separate the two types of banking ?

Thoughts? 

 

While re-implenting Glass Stegal has become a popular idea on the left, the fact of the matter is that it probably won't prevent a banking crises.
The reason is because the last one was largely due to so called shadow banks that are not in even in the retail sector. In short, there is little reason to think Glass Stegal would have prevented the last crises.
As far as banking stability goes, a few basics are:
1. Ensure banks hold sufficient equity capital. Despite what the Republican Party says (and well what jackasses like Jamie Dimon and Lloyd Blankfeinn say too), there is little reason to think that higher equity requirements will slow down lending, at least in ranges that are often discussed.
2. Just expect that financial crises will happen. We'll see another one again at somepoint. So according you need to have some credible mechanism to wind down troubled banks that doesn't freeze credit market and cause enormous losses. The mechanism has to be time consistent. Bankers aren't stupid. They know it's unlikely that a political leader is going to let the economy crash, and that's how you end up basically getting no strings attached bailouts. Dodd Frank, while maybe it's not perfect, essentially does this with the OLA. That flamin' idiot Jeb Hensarling, with his Financial Bomb Act, thinks Bankruptcy Court can sufficiently wind down troubled institutions. I doubt it.
And then of course, when another banking crises happens, be prepared to beat up on conservative idiots and the doctrine of "expansionary austerity" or gold bug-ism.

[GAROVORKIN]

1 hour ago, OldGimletEye said:

While re-implenting Glass Stegal has become a popular idea on the left, the fact of the matter is that it probably won't prevent a banking crises.
The reason is because the last one was largely due to so called shadow banks that are not in even in the retail sector. In short, there is little reason to think Glass Stegal would have prevented the last crises.
As far as banking stability goes, a few basics are:
1. Ensure banks hold sufficient equity capital. Despite what the Republican Party says (and well what jackasses like Jamie Dimon and Lloyd Blankfeinn say too), there is little reason to think that higher equity requirements will slow down lending, at least in ranges that are often discussed.
2. Just expect that financial crises will happen. We'll see another one again at somepoint. So according you need to have some credible mechanism to wind down troubled banks that doesn't freeze credit market and cause enormous losses. The mechanism has to be time consistent. Bankers aren't stupid. They know it's unlikely that a political leader is going to let the economy crash, and that's how you end up basically getting no strings attached bailouts. Dodd Frank, while maybe it's not perfect, essentially does this with the OLA. That flamin' idiot Jeb Hensarling, with his Financial Bomb Act, thinks Bankruptcy Court can sufficiently wind down troubled institutions. I doubt it.
And then of course, when another banking crises happens, be prepared to beat up on conservative idiots and the doctrine of "expansionary austerity" or gold bug-ism.

  I could be wrong and maybe I'm being a bit paranoid but, I think we are due for another 2008 style crash or worse.  2008 left me a more then bit skittish on both banking sector and the stock market .

 

 

[OldGimletEye]

On 11/5/2017 at 10:14 AM, GAROVORKIN said:

  I could be wrong and maybe I'm being a bit paranoid but, I think we are due for another 2008 style crash or worse.  2008 left me a more then bit skittish on both banking sector and the stock market .

 

 

A few things:
I think the US equity market is probably overvalued and we are due for a correction there.
The US real estate market doesn't seem to being to badly, particularly if you go by Price/Rent ratio, as I posted on the US politics thread.
Between, the asset markets, based on research, it would seem where asset mispricing is concerned, the one you really worry about is real estate. And debt aggregates are not where they were in 2007. So I don't think we'll see one immediately or in the near future, not at least to the extent of 2007.
Asset mispricing bubbles are extremely hard to predict and I don't think we understand them as much as we would like. This is one reason I'm not a fan of using monetary policy to prick them. Get it wrong and you cause unneccessary output losses. And plus monetary policy really should be used to target one or two policy targes at most. It's just too much to have it try to deal with asset bubbles. One line of defense is simply to have a robust banking system (that's where equity capital requirements come in)
At some point we'll have another financial crises, like the last one. Question is will we be able deal with it? I'm not to optimistic about this, given recent history. We had a playbook from the 1930s and lessons from that era, but from a  policy standpoint chose to ignore them because certain sorts of people, ie the expasionary austerity crowd, chose to sell horseshit instead and largely got believed.