Volker: Separate Investment Banking from Commercial Banking

Paul Volker the head of Obama's Economic Advisory Board, has been advocating that commercial banks should be prohibited from trading on Wall Street. The economic crisis was precipitated by large commercial banks taking excessive risks. If these banks were to do their ascribed duties and just lend this crisis may have been averted. By separating investment from commercial banking it could prevent banks from becoming to big to fail. The Obama administration is opposed to this idea with many economists agreeing that if there was this separation our banks would not be able to compete globally with banks in Europe and Asia. Obama has called for more regulation of Wall Street but is having problem making headway in Congress.

Volker's Plan would allow commercial banks to be rescued by the Federal Government if they fail. On the other hand, investment firms will no long have access to federally insured deposits to help finance their trading activities meaning that the government will not rescue them if they fail. This could lead to investment banks to give smaller bonuses and take on less risk. -NYtimes