Obama Talks Tough to Banks

Last Updated Jan 21, 2010 5:27 AM EST

It looks like the political winds have shifted away from Tim Geithner/Larry Summers and toward Paul Volcker/Elizabeth Warren:
Obama to Propose Limits on Risks Taken by Banks, by Jackie Calmes and Louis Uchitelle, NYTimes: President Obama on Thursday will publicly propose giving bank regulators the power to limit the size of the nation's largest banks and the scope of their risk-taking activities... The president, for the first time, will throw his weight behind an approach long championed by Paul A. Volcker...
Large banks operate in many different markets, one of which is traditional commercial banking. Large banks take deposits, make loans, clear payments, and carry out other functions that define commercial banking. The proposal prevents banks from using deposits made into the commercial bank side of their business to fund the purchase of risky assets such as mortgage backed securities, an activity known as proprietary trading. This type of activity caused the large losses that led to the bank bailouts.

The proposal would also put limits on bank size, though how size will be determined is not clear.

I want more details, these proposals don't exhaust the needed changes, and who knows what Congress will actually do -- I don't think we'll get anywhere near the amount of change we need when all is mostly said and little actually gets done -- but this is a move in the right direction. Too bad it didn't happen months ago.
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    Mark Thoma is a macroeconomist and time-series econometrician at the University of Oregon. His research focuses on how monetary policy affects the economy, and he has also worked on political business cycle models. Mark is currently a fellow at The Century Foundation.

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