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.
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.