President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, into law this week. While we are generally not fans of regulation, we are not surprised at the outcome. When the economy goes through periods of stress, increased regulation is often the response.
Parts of the financial reform stress putting some limits on the proprietary positions of the larger banks in terms of trading, which we feel is good. The repeal of the Glass-Steagall Act of 1933 effectively removed the separation that previously existed between investment banking and commercial banking, and that has been blamed for much of the 2008 financial crisis. If an institution is going to be FDIC insured, it is inappropriate for them to have limits on the kind of proprietary risk they take. Our worry is that we do not want regulation overhang making it cumbersome to extend credit in the economy. Small businesses are still finding it hard to get the financing they need, and we feel that is what we should be focused on.
We are also pleased to see most regulatory authority stayed under the Federal Reserve. Most bankers feel that the Fed does a good job with regulatory oversight.
The benefit for average investors is that the regulation bill made the FDIC coverage limit extensions permanent. Personal accounts are insured up to $250,000 per depositor, per insured depository institution for each account ownership category. The provision was also made retroactive to apply to banks that failed between January 1 and October 3, 2008—including IndyMac Bank, one of the largest failed banks during that period.
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