Paul Volcker has been championing stricter bank regulation for months now — and seemingly getting nowhere against the combined forces of Larry Summers and Tim Geithner. But I guess a 6' 7" former Fed chairman can still wield some clout after all. Today, with Volcker at his side, Barack Obama announced his new proposal to limit bank size and risk:
"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," President Obama said Thursday. "It is exactly this kind of irresponsibility that makes clear reform is necessary."
Admistration officials said the new rules would force major institutions from J.P. Morgan Chase to Bank of America to decide the direction of their business. Banks shielded from risk through federal-deposit insurance, or aided in financial crises by low-interest loans from the Federal Reserve Board, would no longer be allowed to engage in trading unrelated to their customers' interests, one senior administration official said.
Just how tough will these new rules be? We don't know yet, since Obama offered no detail at his press conference. However, Tyler Cowen offers a list of things to watch for:
"I don't pretend to know the answers to these questions," Tyler says, "nor do I expect such answers to be announced on day one." Me neither. But as we get them we'll begin to know whether this is a serious proposal or just a PR move.