The former Citigroup chairman now believes it was a mistake to scrap the Glass-Steagall separation of commercial and investment banking, once seen as one of his crowning achievements. As stunning as this admission was, he was only catching up with what markets already think.Given the interconnectedness of financial markets and financial institutions, a full reinstatement of the Glass-Steagall Act would probably be too expensive to implement, even allowing for the benefit of reduced risk to the financial system.
Nevertheless, expect some Glass-Steagall-inspired ideas, such as the Volcker Rule, to be adopted in the near future:
the Volcker Rule....is intended to limit the ability of big banks to make large “proprietary” bets. (Proprietary trading is jargon for speculation – betting on asset prices going up and down.)Let's pause in our mockery, even vilification, of Sandy Weill to recognize how difficult it is for the very rich and powerful to admit that they were wrong. Okay, time's up, resume your mockery and vilification.
The basic idea of this is simple and completely compelling. Paul A. Volcker, the former chairman of the Federal Reserve System, has stressed that this measure will help us move away from an arrangement in which the people who run big banks get the upside when they are lucky – and the rest of us are stuck with some enormous, awful bill when things go awry.