For years, banks had bet on risky investments with their own money. But when those bets go bad and banks fail, taxpayers could be forced to bail them out. That’s what happened during the 2008 financial crisis.
A harder line with bankers might also help Obama win over protesters on Wall Street. Many say Obama was too lenient on the banks because he continued the bailouts that had begun under President George W. Bush.
Eatman worked on Wall Street for 20 years as an office manager and in other positions at securities firms. He said that if financial rules for banks hadn’t been relaxed in the late 1990s, “the foundation for this reform would have been in place” already.
The Securities and Exchange Commission must still vote on the rule, and then the public has until Jan. 13 to comment. The rule is expected to take effect by July after a final vote by all the regulators. Banks would have until July 2014 to comply.
Critics contend that the rule as written is too vague and its effect on risk-taking will be limited. Banks have a history of working around rules and exploiting loopholes. In this case, banks can make most trades simply by arguing that the trade offsets another risk that the bank bet on.
The draft rule “draws too few bright lines to make clear what banks can and cannot do,” said Bartlett Naylor, financial policy advocate at the liberal group Public Citizen. “The regulators are proposing that they will detect the difference between various trades by fishing through complex data provided by the banks after the fact. This is an invitation for evasion.”
“How can banks comply with a rule that complicated, and how can regulators effectively administer it in a way that doesn’t make it harder for banks to serve their customers and further weaken the broader economy?” Frank Keating, head of the American Bankers Association, said in a statement.
At the same time, several big U.S. banks have already shut down their proprietary trading operations in response to the financial overhaul. Critics say they have merely spread those traders across other desks without ending their risky practices.
The rule also would limit banks’ investments in hedge funds and private equity funds, which are lightly regulated investment pools. Banks wouldn’t be allowed to own more than 3 percent of such a fund. In addition, a bank’s investments in such a fund couldn’t exceed 3 percent of its capital.
Before Congress passed the financial regulatory overhaul, banks had no limit on how much of those funds they could own. Still, typically on Wall Street, such investments already fall below the 3 percent threshold.
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Category: Business/ Economy
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