Ben Bernanke, the Federal Reserve Chairman, doesn’t think that the separation between commercial and investment banks, like that required by the repealed Glass-Steagall Act in 1933 and proposed by the Volcker Rule today, would work. The topic is very controversial, but Bernanke’s reasons are bizarre, for a central banker. "I don't think Glass-Steagall by itself would solve our problems – he said on April 14th to the U.S. Congress – because we had commercial banks losing money on regular loans and we had investment banks losing money on speculative securities trades, so separating that wouldn't have saved Lehman Brothers and it wouldn't have protected a number of banks that had problems”. The Bernanke’s rebuttal is flimsy: separating commercial and investment banks, we would have had a completely and unpredictably different financial system.
The Glass-Steagall Act and the Wolker rule main rationale is to avoid to have a risky mismatch between short-term debts – typically deposits – and long-term investments, and a conflict between the goal of preserving the integrity of deposits and that of investing money profitably, taking some risks. Incentives to take more and more risks with some other people’s money were likely the main cause of the crisis.
The Volcker Rule doesn’t forbid any individual shareholder to invest in a commercial bank and an investment bank. It is not against economic freedom. It bans an unsound relationship between two different business activity, imposing a specific ‘tool’ for each of them, and using in a risky way money supposed to be safe. Therefore, it is worth to think about this. Even in Europe.
