Somehow I'm not so sure that foreign governments would care all that much.
However, the Times' editorial does raise serious issues in gliding past them. First is the reality of competitiveness. Would it be better for some banks to fail and others to stagger along rather than let private equity into the game? After all, because there are global markets, there are also overseas banks with strong currencies eager to buy into the U.S. banking system. Should we encourage that? Moreover, banks have complained for years about the effects of disintermediation, that is, non-banks taking business from them; the demise of Glass-Steagall, in part, was an attempt to make commercial banks more competitive at home and abroad. It worked, at least for awhile.
But what is a "bank" anyway, and why is it so important that it receives special regulatory treatment? Defining a "bank" is really where we should start if we're going to think through rebuilding the system. Traditionally--since the '30s--commercial banking was viewed as the all-important economic conduit that, through credit, kept the economy growing. Banks were also repositories of retail deposits, and thus viewed as more of a utility than, say, investment banks that traditionally served as intermediaries among sophisticated investors. The Federal Reserve controlled the money supply through the largest of these banks,and received, in turn, supervisory power over them; banks were generally more tightly regulated than other financial entities. Rules were promulgated to keep non-bank investors (corporations, private investors) from using the organization as a piggy bank for other interests.
That was then. Today, as evidenced by the prevailing notion that the Fed needs to be a "market stabilizer," banks and other financial services entities, notably Wall Street firms, have converged. (As a result, the media calls nearly everything "banks" these days.) The Fed long sought greater powers for "its" banks--again Glass-Steagall's repeal was one result--and it spread its de facto supervisory power over Wall Street firms with the post-Bear Stearns Cos. decision to offer them loans from its discount window. Given all that, and given that banks long surrendered their primary status as monetary levers to the markets, should we treat them any differently from other financial firms? But those deposits, you say, need to be protected from rapacious buyout shops. Well, deposits are backed by the FDIC, which gives depository institutions an edge in the market in exchange for another layer of regulation. That needn't change.
I'm not going to say there are easy answers here. The '30s banking legislation did bake in important protections that need not only to be preserved, but extended. But it's equally true that the world has fundamentally changed. The Times is arguing, in a sense, that we should simply pretend that banks resemble those in, say, the '70s. In doing so, however, we'd end up in that dead-end so often reached as we attempt to "protect" one entity in a deregulated market: Banks that, over time, become marginalized--larger, weaker, more in need of government protection. The lesson you can take away from the Times' editorial is that, no matter how much you dislike the regulatory system that is rapidly taking root with the Fed at its apex, you can't just blithely return to the way things were either. We need a fresh start and a fresh set of definitions. -- Robert Teitelman
See the editorial from The New York Times
The New York Times on Sunday 
