In a speech given today at the White House, the Obama Administration cracked down on trading activities by banks in an attempt to limit the size and risk taking activity of the countries largest financial institutions.
“The Volcker Rule”
The proposal, which has had strong support from former Federal Reserve Chairman Paul Volcker, demonstrate a movement towards tightening the definitions of what constitutes a “bank,” and drawing a line between retail and investment banking. While this is not quite the call to reinstate Glas-Steagall that some lawmakers have discussed, it does hint at the fact that the administration no longer will tolerate banks that take unregulated risks with taxpayers money.
“We simply cannot accept a system in which hedge funds or private-equity funds inside banks can place huge risky bets that are subsidized by taxpayers and could pose a conflict of interest,” President Obama said.
No More Too Big to Fail
The main point that Obama seemed to want to leave the American people and financial institutions with after this speech was that the administration would no longer tolerate banks that are able to grow to the point where they hold the American taxpayer hostage. By limiting the hedge-fund and private-equity style trading in large, customer backed banks, the administration is sending a message that there are going to be some substantial changes to the status-quo on Wall Street.