Banks in the US are blamed
widely for financial crisis and
criticized for sopping bailout money from the government and
for their craziness in profligate bonuses. The subsequent financial crises
over the years in the US reveal that the 30 years of deregulation in the US has
rewarded destructive competition rather than constructive competition.
Indeed, the system rewarded those who maintained and grew their market shares
by any means without any considerations. However, the time has come to
construct regulation which rewards honest people and punishes the culprits. In
imposing new limits on the size and trading activities of financial
institutions on January 21, 2010, President Obama warned that financial system was
still operating under the same rules that led to its near collapse.
To prevent banks and financial institutions from acting carelessly
and taking excessive risk, the Obama administration seeks to renovate
overall supervision of the financial services industry. The new proposals intend to
increase accountability and market stability in areas like credit card
loans, home mortgage, Federal Reserve oversight, derivatives and credit
rating agencies. The `Volcker Rule' is named after former Federal Reserve
Chairman, Paul Volcker who is also one of Obama's Chief Economic Advisors
and one of the biggest proponents of Glass-Steagall type restrictions. The
Banking Act of 1933 is known as Glass-Steagall in recognition of its sponsors,
Senator Carter Glass and Representative Henry B Steagall.
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