What Does Obama’s Bank Reform Plan Mean for You?

By Sadie Bass

Jan 21, 2010 5:07pm

ABC's Betsy Stark reports from New York:

There’s a lot we still don’t know about the new White House plan to restrict banks from risky trading activity.  Paul Volcker, the former Federal Reserve Chairman who led the charge for reform, says the goal is to “make banking boring again.”  The industry counters that a complex global economy requires big, complex institutions. 

But we wanted to know: what might the President’s bank reform plan mean for you?   

– Will it make the banking system safer for ordinary Americans?

The Administration says yes… because banks that hold consumer deposits will not be allowed to trade the kind of risky products that led to the financial system collapse.  But both industry advocates and consumer groups told us the taxpayer will still be at risk because “non-bank” financial institutions, like AIG, will not be subject to the new rules.  And, as we learned from AIG, even “non-banks” can be considered too big and too inter-connected to fail.  

– Will these changes make it easier for small businesses to get loans and for consumers to get credit at reasonable rates?

Not necessarily.  Analysts say banks will still make consumer loans based on whether they think they can make money on them.  But consumer groups say that banks have been distracted by the big profits they can make on these exotic products and this could refocus them on more plain vanilla lending.

– Is there a risk these rules could put American banks and American companies at a competitive disadvantage?

Some analysts say yes.  Big banks stand to lose 20-50 percent of their profits and if they do, they could lose talent to international competitors and they could lose the ability to serve big, sophisticated clients such as multinational companies, state governments and pension funds.

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