Simon Johnson, the long standing warrior against big banks and fancy finance suggests to reinstate Glass Steagall Act.
The best argument for a modern Glass-Steagall act is the simplest. We should want a lot more loss-absorbing shareholder equity. And, to reinforce this, we should want to make the largest banks simpler and more transparent, with “strong structural firewalls” as Dennis Kelleher, of Better Markets, puts it. Of course, in that context, we should ensure that various activities by “shadow banks” (structures that operate with bank-like features, as Lehman Brothers did) are properly regulated.
Building support for legislation to simplify the biggest banks would greatly strengthen the hand of those regulators who want to require more shareholder equity and better regulation for the shadows. These policies are complements, not substitutes.
Just 20 years back, there was so much noise about removing Glass Steagall Act. And it was of course removed and banks allowed to get into all other activities. Discussions have moved back to square one now..