On: Has Wall Street Been Tamed?

[bradleyjg]

>> If depository banks are going to be very risk adverse they won't be earning much on the use of those demand deposits

> You realize that this is how it used to be, right? Up until 1999. I don't know about you, but I got more interest and paid fewer fees back then...

No it isn't. Yes, the retroactive magic bullet Glass-Steagall act was in place but no they were certainly not very risk adverse. Do you remember Savings & Loan? 'cause I do.

Again, what's stopping you from opening a neo-goldsmith bank today (we have mattresses so you don't have to!)?

[dragonwriter → bradleyjg]

> Yes the retroactive magic bullet Glass-Steagall act was in place but they were certainly not very risk adverse. Do you remember Savings & Loan? 'cause I do.

Savings and Loan associations (while they perform some similar functions) are different institutions than banks, governed by different laws and regulations, and the high-risk behavior that played a major role in the S&L crisis was directly enabled by the deregulation of that industry (it's a much more clear example than the ties between the banking deregulation and the recent housing finance crisis.)

You can't point to the S&L crisis as evidence that banks weren't risk-averse at the time, since high-risk behavior at issue there was at S&Ls, not banks, and was directly tied to the laxer regulatory oversight of S&Ls at the time, compared to banks.