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Big Banks Want to Take Big Risks Again

By on April 21, 2014
By David Shankbone (David Shankbone) [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0/)], via Wikimedia Commons

According to an article in the New York Times, the big banks really don’t like the Volcker Rule. The Volcker Rule forbids banks from partaking in certain investments that are considered too risky. The reason for this rule is obvious. The banks that have been deemed too big to fail, do not have to worry about bad investments because they know that if their investments become so bad that they risk insolvency, the federal government will bail them out.

But now these banks want to be able to invest inC.L.O.’s or collateralized loan obligations that bundles of commercial loans sold to investors. The Volcker Rule would deem these investments as too risky for the banks to partake in. But the big banks are fighting against the Volcker Rule with help from Congressman Jeb Hensarling, a Republican from Texas. We will see how this goes down.

But I have an idea that would solve all this. If these banks really are so big that a failure would put the entire economy at risk, then these banks are too big to exist and should be broken up into smaller banks. Then they could make whatever risky investments they wanted to. But if they failed, they would simply be dissolved and go out of business like any other small bank that makes bad investments.

You can read the full article here… Banks Cling to Bundles Holding Risk – NYTimes.com






Information on featured image for this post – By David Shankbone (David Shankbone) [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0/)], via Wikimedia Commons

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