Pres: We need more banking reform

by. Henry Meier

In a recent interview, President Obama suggested that what the country needs is more banking reform. Speaking on MarketPlace Radio last Wednesday, the President was asked whether Dodd-Frank had worked since mega banks are as big as ever? After going through the usual litany of Dodd-Frank accomplishments – i.e., the CFPB and so-called “living wills,” as well as increased capital requirements, the President changed his tone:

“Here’s the problem, the problem is that for 60 years, we’ve seen the financial sector grow massively. Now, it’s a great strength of our economies that we’ve got the deepest, strongest capital markets in the world, but what has also happened is that as the financial sector has grown, more and more of the revenue generated on Wall Street is based on arbitrage — trading bets — as opposed to investing in companies that actually make something and hire people. And so, what I’ve said to my economic team, is that we have to continue to see how can we rebalance the economy sensibly, so that we have a banking system that is doing what it is supposed to be doing to grow the real economy, but not a situation in which we continue to see a lot of these banks take big risks because the profit incentive and the bonus incentive is there for them. That is an unfinished piece of business, but that doesn’t detract from the important stabilization functions that Dodd-Frank was designed to address.”

Now, to be clear, politics being politics the White House quickly got out the word that the President’s comments didn’t mean that another push for banking reform was on its way. And there was speculation as to whether the President actually meant what he said or if his comments were simply intended to preempt criticism of Dodd-Frank in advance of its upcoming anniversary.

But the President’s comments reveal an inconvenient truth of which anyone who has tried to implement Dodd-Frank is aware: Congress and the President have done precious little to prevent another financial crisis. The too big to fail banks are still too big and with finance taking on an increasingly important role in the economy as a whole, reform of the banking system – such as reinstating boundaries between investment and commercial banking – are now all but impossible to achieve. The President had his chance, and he did not go far enough. For my money, it will go down as the greatest failure of his Presidency,

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