It's not just about loan portfolios, it's about prohibiting commercial banks from investing your savings account in (for example) the derivatives market.
It's not just about loan portfolios, it's about prohibiting commercial banks from investing your savings account in (for example) the derivatives market.
Other laws already prevent investment of savings in low-grade securities and junk bonds. That set of issues is already addressed by requiring retail banks - and commercial banks, much to the chagrin Goldman Sachs - to meet stress tests by having diversified portfolios that avoid the kinds of concentrations many held in 2008. Glass Steagall didn't address those; it presumed that banks' income portfolios were largely in their own loans. But that's not where banks make money any more. Most loans are sold to mortgage bankers, then securitized and sold in the derivatives market, which is also now more regulated than in 2008.
Glass Stegall also did not prevent banks even in the early 1980s from selling their mortgage portfolios to brokers who could bundle then securitize them into derivatives. If you want a good study on the topic of the legal and financial aspects of derivatives, I recommend "Capital Markets, Derivatives and the Law," by Ala N. Rechtschaffen (Oxford Univ. Press, 2009). Many of the ills of unregulated derivatives have already been addressed in Dodd-Frank and other laws passed in the wake of 2008.
Right now, they pay almost nothing on deposits precisely becasue deposits can't be invested in high-risk/high-yield assets and still be insured by FDIC.
What should banks do to make enough money to pay interest on deposits?
What background do you have in how 21st century banking works?
It's not just about loan portfolios, it's about prohibiting commercial banks from investing your savings account in (for example) the derivatives market.
Other laws already prevent investment of savings in low-grade securities and junk bonds. That set of issues is already addressed by requiring retail banks - and commercial banks, much to the chagrin Goldman Sachs - to meet stress tests by having diversified portfolios that avoid the kinds of concentrations many held in 2008. Glass Steagall didn't address those; it presumed that banks' income portfolios were largely in their own loans. But that's not where banks make money any more. Most loans are sold to mortgage bankers, then securitized and sold in the derivatives market, which is also now more regulated than in 2008.
Glass Stegall also did not prevent banks even in the early 1980s from selling their mortgage portfolios to brokers who could bundle then securitize them into derivatives. If you want a good study on the topic of the legal and financial aspects of derivatives, I recommend "Capital Markets, Derivatives and the Law," by Ala N. Rechtschaffen (Oxford Univ. Press, 2009). Many of the ills of unregulated derivatives have already been addressed in Dodd-Frank and other laws passed in the wake of 2008.
Methinks he doth protest too much...
Banks should be prohibited from INVESTING ordinary deposits (not talking about bundling mortgages).
John -
Right now, they pay almost nothing on deposits precisely becasue deposits can't be invested in high-risk/high-yield assets and still be insured by FDIC.
What should banks do to make enough money to pay interest on deposits?
What background do you have in how 21st century banking works?