Robert G. Wilmers, a defender of community banking, doesn't explicitly mention the abolition of Glass-Steagall, but he lays out some of the consequences of that nonetheless, one of which is that the FDIC is now on the hook for the mistakes of speculators, something it was never intended for:
In 1990, the six largest financial institutions accounted for 9 percent of all U.S. domestic deposits. As of Dec. 31, 2010, the six biggest banks accounted for 36 percent of deposits. ...
In 2010, the six largest bank holding companies generated $56.1 billion in trading revenue, or 74 percent of their $75.7 billion in pretax income. ...
The Big Six institutions earned more than 93 percent of the trading revenue generated by all American banks during the past two years. ...
The major Wall Street banks operate under the taxpayer-backed umbrella of the Federal Deposit Insurance Corp. and, as we saw in 2008, the Treasury Department and the Federal Reserve. To pay for the cost of such protection, legislators and regulators have forced thousands of Main Street banks like the one I run to absorb a larger, more expensive set of regulatory costs, including higher capital and liquidity requirements. ...
Regulators have failed to distinguish between trading activity and traditional banking, or to recognize that the activity of an institution, not its form, should be the proper focus of oversight.
New Rules Needed
Main Street banks are heavily regulated -- and have been for generations -- to ensure their safety, soundness and transparency. A new generation of regulation must now be applied to what has become a virtual casino. ...
Those financial institutions that engage in trading should live and die by the pursuit of their fortunes, rather than impose a burden on the whole economy.
It’s time to disentangle the trading of big financial institutions from their more traditional commercial banking operations and put an end to this unsafe business model.
Make sure to read his entire op-ed at Bloomberg, here.
