Tags: Volcker | financial | regulatory | reform

Volcker: Financial Regulatory Regime 'Simply Inadequate to Head Off Crises'

By    |   Monday, 20 April 2015 07:00 AM

If you thought the Dodd-Frank financial reform act of 2010 eradicated the dangers to our financial system, think again, says former Federal Reserve Chairman Paul Volcker.

"Even as the United States continues its long climb back from the financial crisis, it is all too clear that the federal financial regulatory structure is simply inadequate to head off future crises," he writes in an article for The Washington Post.

"The structure that failed us in anticipating and responding to the emergency is largely still in place."

Many commentators have noted that the biggest banks have only grown bigger since the 2008 financial crisis. The six largest U.S. banks have about two-thirds of the assets in the country's banking system.

"Important progress has been made, here and internationally, in shoring up banking regulations, notably through stronger capital requirements," Volcker says.

"But, basically, the institutional structure for financial regulation — which traces its origins to the 1930s — has resisted repeated efforts for meaningful reform," he notes.

"We need to make sure we have institutions with clear mandates, adequate financing and dedicated personnel insulated from partisan and particular political pressure," Volcker adds.

"The objective can't be questioned. The need for institutional reform is evident. Let's break the pattern of resisting the need for administrative reform, consider the risks of repeating avoidable crises and demonstrate that this great democracy still has the capacity to act in the common interest."

Meanwhile, in the wake of positive earnings reports from JPMorgan Chase, Goldman Sachs and Citigroup this week, ace bank analyst Dick Bove of Rafferty Capital Markets says now's a good time to buy big bank stocks.

The companies are benefiting from low interest rates, he tells Yahoo. The Federal Reserve has kept its federal funds rate target at zero to 0.25 percent since December 2008.

"What's working is commercial lending, trading and investment banking," Bove notes. He also cites very attractive valuations. "Citigroup sells at a 25 percent discount to book value. Bank of America sells at a 31 percent discount to book value. There is simply no reason for that.”

Goldman, Citi and JPMorgan are "underperforming stocks which are showing good earnings, yet selling at big discounts to book value. That's a good reason to buy," Bove explains.

The KBW Bank stock Index has returned 7.8 percent over the last year, compared with 14.4 percent for the S&P 500.

To be sure, Bove isn't so hot on regional banks. "Anything related to residential mortgages or home equity loans has not been working," he adds.

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If you thought the Dodd-Frank financial reform act of 2010 eradicated the dangers to our financial system, think again, says former Federal Reserve Chairman Paul Volcker.
Volcker, financial, regulatory, reform
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2015-00-20
Monday, 20 April 2015 07:00 AM
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