The Volcker banking plan?

Obama proposes a new banking plan and everyone is commenting for instance here is Simon Johnson.  The plan seems to involve limits on bank size and limits on proprietary trading.  Some time ago I decided not to "chase around" all the different banking plans on tap.  First, it would make me dizzy, and second it is hard to evaluate the plans in their early forms.  But here are some general questions you should ask about any plan:

1. Do its restrictions apply to subsidaries, affiliates, and holding companies in a meaningful way?  Can they apply?

2. How do the restrictions apply to off-balance sheet activities, if at all?  Keep in mind the various lessons about the construction of synthetic asset positions.

3. How will Congressional oversight committees apply and interpret the plan?  This is a big one.

4. Can a financial institution avoid or sidestep the restrictions by changing its status as a commercial bank, legally speaking?

5. If you cap bank size, are the new and smaller banks still "too big to fail" by prevailing standards?

6. How does the proposal treat bank leverage, including implicit forms of leverage through off-balance sheet activities?  Does leverage get redistributed elsewhere?

7. How does it affect the political economy of bank lobbying?

I don't pretend to know the answers to these questions for the new Obama plan nor do I expect such answers to be announced on day one.

Here is my earlier post on "Itty Bitty Banks."


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