Proposed Banking Regulations Receive Chilly Reception

Since September 2008, the federal government, has been supporting a variety of banks and other financial institutions, the "to big to fail" policy. Because of these actions, increased scrutiny has been placed on the overall size of financial institutions, with many questioning if the repeal of the Glass Steagall Act was what helped fuel the financial irresponsibility that occurred at these institutions. As a result, President Obama has proposed a number of sweeping regulations that limit the size of financial institutions and the overall business activities that they engage in.  There was also a proposal backed by Former Federal Reserve Chairman Paul Volker, in which they want to stop large commercial banks from making risky trades in their own accounts, especially since the depositors funds are backed by the FIDC. Yet, after all of the different challenges that have been wrestled over the past two years, the proposed regulations met a chilly reception in the Senate Banking Committee.

During recent testimony to the committee, Volker was grilled by Senators about the different proposals that the administration was putting forth. As some Senators questioned the timing of the proposed legislation and if it would do anything to prevent financial abuses in the future. In response to the heated criticism, Volker stated that he is ensuring that the causes of the current and future financial meltdowns are averted. Otherwise, if the different proposals are ignored, it could be one of the factors that will cause the next major financial crisis.  Even though questioning was heated at times, committee Chairman Chris Dodd commented at how they have been working on a series of measures to address similar situations that the President is proposing.

What all of this shows; is that while no significant reforms have taken place in the financial system.   The Senate is clearly working on some kind of reform to address these changes.  These reforms are significant because when the Glass Steagall Act was repealed the size of the various financial firms become enormous. This tremendous size, helped spread the toxic sub prime mortgages around the globe with the classic Wall Street product, tranche mortgages. As a result, because of the tremendous growth that took place in these financial institutions; is what led to their tremendous size that only exaggerated the financial meltdown. The legislation that the Senate Finance Committee is working on; means that variations White House proposals will show up in the final bill produced by the committee. Like what happened after the Wall Street stock market Crash of 1929, the financial meltdown will no doubt lead to tighter regulations for: financial institutions, brokerage firms and insurance companies

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