THE BASIS POINT

Former Fed Chair Paul Volcker Is Right About Bank Reform

We missed this BusinessWeek interview with Paul Volcker over the holidays but after reading it, we’re in his corner on bank reform and said something very similar earlier in December when McCain proposed reinstating Glass Steagall. It’s just that Volcker is much more definitive about it. He clarified that he’s not advocating an outright return to Glass Steagall, but rather implementing similar measures. He’s for letting commercial banks engage in securities business for corporate clients, but not for letting them do speculative trading on their own:

Glass-Steagall basically said banks cannot underwrite corporate securities or deal with corporate securities. But I would let commercial banks do underwriting of corporate customers. So you could argue that what I propose is somewhat in the spirit of Glass-Steagall in making a distinction between capital-market activities and trading activities and banking activities. But it is not specifically going back to Glass-Steagall.

Here’s our previous comment on Glass Steagall reforms following McCain’s announcement. We obviously weren’t as ballsy, but then again, we didn’t rescue the US economy from the worst inflation on record either:

…reinstating Glass Steagall (or building in similar concepts to whatever regulatory overhauls are being constructed) is something that lawmakers must consider. It’s just a very tough debate. On the one hand: enabling banking, trading and insurance under one roof feeds the “too big to fail” model that led to massive government bailouts using taxpayer dollars. On the other hand: giant corporate clients do push banks to offer banking, securities and insurance services under one global roof, and letting this market demand lead the way is the essence of capitalism in our globally-linked era.