If President Obama is able to enact the new plan for banks called “The Volcker Rule,” the era of banks too big to fail should be over. Obama has been speaking with former head of the Federal Reserve, Paul Volcker, who is advising the President to adopt a plan different than those suggested by Treasury Secretary Timothy Geithner.
Although the Volcker Rule has parallels with the defunct Glass-Steagall Act that created a wall between commercial banks and investment banking firms, it doesn’t go that far. The repeal of the Glass-Steagall Act allowed banks and investment banks to merge, like J. P. Morgan & Co. and Chase Manhattan Bank in 2000. If the Glass-Steagall Act were fully brought back JPMorgan Chase would be required to separate its businesses again.
Under the Volcker Rule, banks would still be allowed to offer investment services to customers, but they wouldn’t be permitted to invest customers’ FDIC insured deposits for the company’s financial benefit. This plan would effectively reduce the risk that banks assume. The administration also intends to limit mergers and acquisitions in the financial industry, but the details have not been determined yet.
Is the Volcker Rule a good move? What can the government do right now to protect consumers and Is regulation necessary?