COMMENT
Breadcrumb trail navigation:
By Viral Acharya and Matthew Richardson
Published: January 22 2010 18:52 | Last updated: January 22 2010 18:52
Adam Smith recognised in The Wealth of Nations that the rationale for restricting financial institutions from unlimited leverage and trade stemmed from the negative effects their failures imposed on the rest of the system: "The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty, exactly of the same kind with the regulations of the banking trade which are here proposed ... Those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments; of the most free, as well as of the most despotical."
And here we are. The Obama administration has adopted the "Volcker rule" and proposed that walls be built around the proprietary trading party enjoyed by US banks, especially the large and the complex ones, so that when the party catches fire, it does not spread to commercial banking activities such as payments and settlements and lending to the real economy.
You have viewed your allowance of free articles. If you wish to view more, click the button below.
Read Full Article »
