Obama speaks on proposed restrictions for banks on risky trading
InvestorFactor.Com : When speaking about recently bankrupt banks, the consumers are left to wonder about why seemingly strong banks are going belly up. For the outsider (the consumer), most of the banks are perceived very similar in how they are operating. We walk in the branch and if not the logo signs all over the place, we feel pretty much the same inside any bank. They all have similar APYs and APRs and are all having similar everyday usage charges. Only the sizes of banks is perhaps visible variable, which in the eyes of consumer determined by the total number of branches and offices and by the number of ATMs. So, why do we hear in the news that one bank is closing and/or is acquired by the other? Worth mentioning is that “size does not matter” in these events.
The latest initiative coming from White House may shed some light onto what may be actually happening “inside” some banks. It is not said in the open text, but the news is suggestive that some bankers, while “sitting” on clients’ money, are perhaps far from hesitating to, simply put, gamble with them. Apparently, some banks are losing more than others (or TO others) by engaging in risky trading of securities on the open market. Below is the official version of this regulation initiative.
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WASHINGTON – President Barack Obama on Thursday ratcheted up his effort to limit the size of big banks and impose restrictions on the trading activities of ‘too-big-to-fail’ institutions, with the intention of limiting the risks they may take.
My resolve to reform the system is only strengthened when I see a return to old practices at some of the very firms fighting reform; and when I see record profits at some of the very firms claiming that they cannot lend more to small business, cannot keep credit card rates low, and cannot refund taxpayers for the bailout. It is exactly this kind of irresponsibility that makes clear reform is necessary.
The White House seeks to place restrictions on commercial banks so as to prevent them from investing in speculative or risky investment banking activity, including proprietary trading of their own accounts such as mortgage-backed securities. The proposal also seeks to prohibit commerical banks from investing in or advising hedge funds and private equtiy firms.
Copyright © 2010 MarketWatch, Inc.
The initiative to restrict banks from taking unnecessary risks when trading securities on behalf of bank clients may help to stabilize both, market volatility and consumer confidence.
Problem here is also in FDIC insurance, which government has to pay to the consumers of bankrupt banks. This is probably why extra measures are required.