“The single best thing we could do for financial reform: Triple the budgets of all financial regulatory agencies. Immediately. Regulators are woefully understaffed; this is fact.”
I’m not sure about “single best,” but otherwise dead on. The agencies that are self-funding out of their businesses (banking for the Federal Reserve, insurance for the FDIC) have been less bad than the ones that are not (OCC, OTS).
“Some people will claim that it’s impossible to distinguish between market-making trades and propietary trades, but that argument is completely baseless. The banks themselves already distinguish between their market-making trades and their proprietary trades, as there’s a whole different set of rules for proprietary versus market-making trades. So don’t be fooled by that argument.”
The context here is that, technically speaking, the ordinary business of executing trades at the request of clients does involve some risk for the dealer. EoC talks specifically about market-making, where a dealer has an obligation to post a bid and an ask for a certain security. Since it can’t balance it the buy and sell orders instantaneously, it generally carries “inventory,” meaning that it’s long that security. But his point is that banks already divide their business along these lines, so saying they can’t is hogwash. Obama’s proposal might give banks an incentive to try to sneak one kind of trading under cover of the other, but that’s something that could be policed; it’s not like it’s theoretically impossible to distinguish the two.
By James Kwak