Bank of America and Merrill Lynch would have to be separated and Goldman Sachs could no longer be a bank holding company. "Commercial banks would take deposits, manage the nation's payments system, make standard loans and even trade securities for their customers -- just not for themselves. The government, in return, would rescue banks that fail. On the other side of the wall, investment houses would be free to buy and sell securities for their own accounts, borrowing to leverage these trades and thus multiplying the profits, and the risks. Being separated from banks, the investment houses would no longer have access to federally insured deposits to finance this trading. If one failed, the government would supervise an orderly liquidation. None would be too big to fail -- a designation that could arise for a handful of institutions under the administration's proposal" (Uchitelle, "Volcker," 2009).
The Volcker proposal seems sensible, as depositors would be insulated from risk, be able to make standard loans and have their deposits insured. Commercial banks would have the confidence that they could make such loans to consumers with the support of the government. Investment firms could take larger risks, but only consumers with an appetite for such transactions would become involved in such firms. However, while the firms would be less closely regulated, they would also have less financial support from the government, should they fail (Uchitelle, "Volcker," 2009).
But the bank lobby is powerful in Washington, D.C. In 2006, banking lobbyists vigorously opposed seemingly sensible and moderate attempts to rein in the industry practices, including limitations on banks that held large commercial real estate properties. Regulators have been reluctant to curtail speculation during 'good times' and often do not vigorously enforce legislation 'on the books.' "Of the nation's 8,100 banks, about 2,200 -- ranging from community lenders in the Rust Belt to midsize regional players -- far exceed the risk thresholds that would ordinarily call for greater scrutiny from management and regulators" (Dash 2009, p.1). This suggests that further regulation, without a will to enforce it on the part of the government, may accomplish little.
A failure of political will seems endemic to the system. Just as government regulators did not take measures to limit the financial fallout from the housing bubble; they are...
Financial Derivatives This study emphasized the importance roles of financial derivatives, which has been known for the last decade and its effects on the Global financial crisis. It further analyzes the impact of financial derivatives and how it can be controlled to prevent corporations from incurring a lot of risks. It also explains the existence of financial derivatives since 1970, to the recent Global Financial Crisis which occurred in the 2006. Risk
" (2009) Yam states that over the past year the need existed to involve the government more deeply in the banking industry and especially in the area of deposit guarantees and in the supervision of the risk management of banks. Yam states that it is "…gratifying that so many of the tools that we have been able to rely on, including the apparatus and contingency arrangements for ensuring liquidity, have
With them saying in their first quarter 2008 earnings report that they had: a liquidity pool of $34 billion, unencumbered assets of $64 billion and $99 billion in regulated assets. At the same time they affirmed the Moody's credit rating of A1, on the basis of the company's capital basis and liquidity. (Kuhlengisa, 2008) This is problematic, because when looking at this statement and considering what would happen a
The article that was written by Conley (2011) discusses the impact that collateralized debt obligations (CDO's) would have upon the subprime loans. These were created in 1987, by the Wall Street firm Drexel Burnham. In this product, the investment bankers would take a number of different articles and combine them together as one investment. The various assets that were used included: junk bonds, mortgages and other high yielding investments from
The decision of investing or not here then depends on the personal adversity to risk of each individual investor. The general theory states that each investor should construct a diversified portfolio, which adequately balances high risk-high gain shares with medium or even low rates of risk and gains (Hagin, 2004). New Zealand could then be assimilated with a medium risk-medium gain share, and as such would be perceived as
3.2.3 Portfolio Diversification of Investment in Global Property Markets Because the global property markets are affected by globalization and specific country / regional factors, means that the overall amounts of risks will vary, the most notable include: transparency and efficiency. Where, each country / region has different on laws and regulations pertaining to the real estate markets. This means that the risks in a number of different markets will depend upon
Our semester plans gives you unlimited, unrestricted access to our entire library of resources —writing tools, guides, example essays, tutorials, class notes, and more.
Get Started Now