I do which is why banks will specialize in different niches regardless of regulation.

No law prevents a cement making company from leveraging itself like crazy and invest it all in high risk / high reward biotech research. And yet you don't see that happening.

Also, you fail to address the argument that a liquid commercial paper market gives ibanks de facto access to deposits.

And yet we did see commercial banks taking massive risk and going bankrupt because of it. Maybe that's ok though, I could certainly buy the argument that that's just the market.

> Also, you fail to address the argument that a liquid commercial paper market gives ibanks de facto access to deposits.

I don't know what you mean by that. Do you mean ibanks can buy publicly traded commercial bank stocks?

Edit: And let's bring this back around: if this is not the appropriate regulation, what is? Open to hearing something better for sure.

The depositors were insured, so the depositors didn't care. The bank shareholders had a free call option from the federal government in the form of an an implicit bailout guarantee, so they were incentivised to take as much risk as possible.

> I don't know what you mean by that. Do you mean ibanks can buy publicly traded commercial bank stocks?

Without Glass-Steagall: commercial bank takes 90$ from Joe's 100$ deposit and invests it in leveraged CDO^2 on Bhutanese real estate.

With Glass-Steagall: commercial bank takes 90$ from Joe's 100$ deposit and buys 30-day debt from an ibank. The ibank use the money to invest in leveraged CDO^2 on Bhutanese real estate.

And surely you're not going to prevent a bank from making loans, that's their whole raison d'etre (safekeeping of money is incidental).

Short of getting rid of central banking, I don't think you can do anything about this.