Volcker, Vicker or combined global regulations, one may aspire for any or many, but nothing will work when the banks themselves want to fail.
Most of the banks during the recent crises behaved as if they were the masters of the market place and their traders felt that they could predict accurately how the markets would behave and so they were very confident of making money all the time in any market. They however overlooked the very basic tenet that the markets invariably wont behave the way the dealers/bankers/participants expect in the long run.
(How long the long run would be, is really anybody’s guess. It is like the probability forecast. I have read elsewhere, Gurajar state in India, was sitting pretty with the prediction, earthquakes may strike it only once in a three trillion years. Unfortunately the earthquake did not wait for that long but struck destructively in early 2001.
There is also no guarantee that earthquake will revisit only after three trillion years starting from 2001!).
Having accumulated huge positions beyond repair or redemption, the banks could not undo when the markets went against them.
Surely greediness paved the way for their downfall. Lax supervision in some geographies enabled these greedy banks to pursue their path of destruction and downfall without any fear. In my view the regulators were not playing their roles properly in developed economies as compared to other economies. Probably, this could be a good topic for research to pursue with.
Talking of leverage limits, curtailing investment banking activities, separation of investment banking from the core banking, etc, etc, wont work, because our bankers have the canny approach to overcome these limitations to pursue their chosen ambitous path. Who knows some smart banks may have their Plan B ready already to handle prospective prescriptions and proscriptions such as Volcker/Vicker/Combined Global Regulations!
It is yet another topic for dispassionate discussion – investment banking cannot be completely taken away from mainstream banking. Global customers with international trade would require such services at the door steps of their main banks only.
Normally these global transactions provide the initial lead for proprietary positions, whether we like it or not and in an orderly market place safe leverage limits will be followed and respected by the players.
So it is fair and better for the banks themselves to prescribe self regulations and safe leveraging limits going by their inherent strenghts and weakness and strictly follow them.
Lasting institutions are built and run only by such self regulations.
Only when such safe self leveraging limits are breached the regulators will step in, as in ‘controlled’ or truly ‘regulated’ economies.
PS: Our banks, let us hope, have learnt their lessions well during the recent crises. In my view, they may play their roles strictly as per rule book atleast for next couple of years.