ponderings & pennings

Post the great depression in 20s, the Glass Steagall Act was enacted as it was found that the twin functions of banks – corporate banking and investment banking carried conflicting interests. After many years, in 90s the Fed decided that banks were mature enough to let them perform both the functions and repealed the Glass-Steagall Act thereby showing its commitment to the capitalist system of markets. While it’s debatable if that repeal was the result of recent fall of investment banks in the US, the demand for combining the two functions in India has indeed taken a back seat and RBI’s conservatism on this is being praised.

In my opinion, it was the absence of regulation for investment banks in US that led them to their present state and not the repeal of Glass Steagall Act. But then, the regulation of investment banks is not easy with financial innovation in play every hour across various segments of financial markets. Combinations of money, credit and forex markets produce complex, envious but dangerous products and if we had regulation, approval of such products would have delayed introduction into the markets and affected competition – the sole soul of capitalism.

However, indirect regulation for example extensive audits of mortgage firms would have lessened the effect if not avoided. We were once talking how in India regulators fight to have control of one sector/industry (example = tussle between RBI and SEBI, between SEBI and IRDA) seems funny, when US is all ready to deregulate any sector/industry. Well, I still do not know if the fun continues and if it does, where? When on fun, lets see this good video and have some good fun: