Free Markets, Free People

Will Proposed Bank Regulations Kill US Bank Competitiveness?

That is certainly what New York City Mayor Michael Bloomberg believes.  And, surprisingly, his position is supported by none other than the Secreatary of the Treasury, Timothy Geitner.

The proposed bank regulations, all driven by President Obama’s war on Wall Street, would limit big bank’s trading and size. Obama claims that the nation will never again be held hostage by institutions deemed “too big to fail”.

Well, here’s a clue – the only ones who claimed they were too big to fail and threw all that money at them are the same ones now trying to regulate them into noncompetitiveness. You’d almost think this was part of a plan if you didn’t believe they weren’t smart enough or quick enough to do such a thing. But, as they’ve claimed, they won’t let a crisis go to waste.

In fact, this is another battle in the long class war against the rich. Nothing symbolizes the “rich” like Wall Street. And nothing serves Democrats in trouble better than a populist cause (or at least one they deem to be populist). So while voters continue to send messages to the Democrats via VA, NJ and MA, health care reform implodes and the President’s job approval rating tanks, he’s warring on the institutions which are critical to the economic recovery of the nation.

How freakin’ tone deaf can one be?

Mayor Bloomberg has some immediate local issues that concern him – possible layoffs and the erosion of the tax base. But he also recognizes that handicapping US banks when no such handicaps exist for foreign banks, hurts their long term competitiveness and will therefore have negative long term consequences.

Obama’s proposals would prevent banks or financial institutions that own banks from investing in, owning or sponsoring a hedge fund or private equity fund.

He called for a new cap on the size of banks in relation to the overall financial sector that would take into account not only bank deposits, which are already capped, but also liabilities and other non-deposit funding sources.

The proposed rules also would bar institutions from proprietary trading operations that are for their own profit and unrelated to serving customers

According to sources, Geithner says the proposed regulations “do not necessarily get at the root of the problems and excesses that fueled the recent financial meltdown.”

He’s not alone in that criticism:

Lawrence White, a professor at New York University’s Stern School of Business and a former regulator, said Obama’s proposals were “a solution to the wrong problem.”

“They have this rhetoric that it was proprietary trading that was the problem,” White said. “That’s wrong.”

Of course the Obama war on Wall Street is certainly having an effect – bank shares have declined as has the dollar against other currencies.

If you don’t get the idea that this is mostly an ideologically driven “war” trying to cash in on populist anger at a time when nothing is going well for the administration, you’re not paying attention. It also points to an “war of choice” based in a very poor understanding of economics and the fact that we’re engaged in a global economy where competitiveness is critical. If these regulations pass and when the recovery falters because banks are hobbled and noncompetitive, I’m sure that somehow the White House will again play the “greed” card out in a effort to hide the effects of their own short-sighted and ideologically driven economic malpractice.


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8 Responses to Will Proposed Bank Regulations Kill US Bank Competitiveness?

  • People seem to think that things are getting worse because Obama has not focused on jobs and the economy.  I would say that any time Obama focuses on jobs or the economy, that is when things seem to get worse.

  • I wonder if Obama realizes that campaign contributions associated with hedge funds significantly favour Democrats:
    $11 million to Dems vs $6 million to Reps in the 2008 cycle
    $ 26 million vs $13.4 million since 1990

    • Money needs to be taken out of the election process but there is not much chance of that. We really do not have a country “for and by the people anymore”  it is for the money and by the money. The saddest part is that large companies will dominate and squash new innovation and smaller companies–this has been happening now for quit a few years. We now have armies that you and I paid for out of taxes that do nothing but support and work for our companies overseas. YOU paid for them, not companies. Capitalism is a great system when it is run with ethics and principles, but that is not what is happening today–it is full of criminals.
      I do trust Bloomberg and think he is one of the best capitalist we have, but somehow we have to stop the gambling with our money and with our economy. We need to get back to conservative, sound banking. This is the feeling of liberals, conservatives and independents alike. When our banks can be trusted, they will have more business than anyone in the world.

  • If Obama gets his way on this I wonder what he’ll do should the banks get up and leave.  Most of the ‘too big to fail’ bunch are international.

  • I am not sure about the rest of the regulations but limiting banks who draw on the US taxpayer as a last resort to plain banking vs. investment banking seems very reasonable.
    Since we see independent hedge funds already do exist, being owned by a bank is not some key competitive advantage.
    Since we already compete vs. state-run banks and investment funds, I don’t think that is a big deal either. You really think Deutsche Bank of the Bank of China will scoop up our “talent” and take market share? There was an article about how a Chinese sovereign fund hired a Chinese manager and got rid of their Singaporean manager. The Chinese manager had been working in the States and took a PAY CUT to work for the sovereign wealth fund. (But the food is better, so it works out.)
    Since UK (London) is already strengthening its regulations too, where will these bankers run to? Offshore banking centers? Oh, those have existed for decades, so why now and not then?

  • There is one argument I do think is applicable: that in fact, the investment banks, even when hived off, will still be considered politically “too big to fail.” In that case, these reforms achieve nothing.

  • Leave the money in the election process, but take Congress’s power away to play favorites and issue favors, something Walter Williams has pointed out perhaps a dozen times.
    If there’s nothing to buy, there’s not point to “bribes”.