A Quote by Ben Bernanke
Investment banks manage to go bankrupt through their investment-banking activities, commercial banks manage to go bankrupt through their commercial-banking activities.
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Since JPMorgan Chase announced its surprise $2 billion-and-growing trading loss, there have been renewed calls from economists, pundits, and politicians to reinstate the Glass-Steagall Act, a Depression-era law that prevented commercial banks from participating in investment banking activities.
On the Glass-Steagall thing, like I said, if you could demonstrate to me that it was a mistake, I'd be glad to look at the evidence. But I can't blame [the Republicans]. This wasn't something they forced me into. I really believed that given the level of oversight of banks and their ability to have more patient capital, if you made it possible for [banks] to go into the investment banking business as continental European investment banks could always do, that it might give us a more stable source of long-term investment.
Investment banking has, in recent years, resembled a casino, and the massive scale of gambling losses has dragged down traditional activities as banks try to rebuild their balance sheets.
The whole banking sector in Mexico was literally bankrupt. For whatever reason, instead of intervening in the sector or supporting the banks, the government expropriated them. We went through the very laborious period of selling the failing banks to the wealthy people of Mexico.
As a matter of fact 25% of our U.S. investment banking business comes out of our commercial bank. So it's a competitive advantage for both the investment bank - which gets a huge volume of business - and the commercial bank because the commercial bank can walk into a company and say, "Oh, if you need X, Y and Z in Japan or China, we can do that for you."
Investment banking has, in recent years, resembled a casino, and the massive scale of gambling losses has dragged down traditional business and retail lending activities as banks try to rebuild their balance sheets. This was one aspect of modern financial liberalisation that had dire consequences.
I started in investment banking at Allen & Company in 1991. It was the go-go days of media mergers, and we were incredibly busy with one deal after another. Unlike typical investment banking groups, even in the midst of merger mania, we didn't have a formal face-time culture - and I felt empowered by that.
Without giving specific names, most of the significant American banks, the larger banks, are bankrupt, totally bankrupt.
I liked the so-called Volcker Rule. I would have separated investment banking and commercial, deposit banking, as we did under the Glass-Steagal Act. I would have brought back Glass-Steagal.
Should we think about separating the investment banks from the commercial banks, a new Glass-Steagall? I would be really excited to see that. I think it would be great for the economy.
We survived for hundreds of years under the old banking structure. You'd have clearing banks, then merchant banks doing the racy stuff, and then building societies where you'd join a waiting list for a mortgage. But then banks started buying stockbrokers, doing mortgages, and you ended up with these big banking groups doing everything.
Banning cash transactions over R3 lakh will allow banks to diversify their banking activities into new areas and not mundane ones.
Our approach to banking is very different from the traditional banks or even some of the new banks. We do not necessarily go out and write single-cheque, large-ticket loans.
The opportunity to create wealth in foreign banks exists only in the investment banking space. Working in a local company teaches you to think long term.
The onus should be on the banks and their compliance officers to ensure the analysts are kept separate from investment banking and they should be punished for breaches.
People with banking experience haven't all flocked to the biggest banks; community banks and regional banks, along with smaller trading houses and credit unions, have some very talented people.
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