Bank Reform
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“A Reform Plan That Leaves Consumers Out” (by Jonathan R. Macey, Opinion, May 18) makes a good argument for reforming the Glass-Steagall Act, but does not justify the reformation of the nation’s banking system.
Commercial banks should own subsidiaries in the financial services industry. The subsidiary relationship is a sound one for reasons that date back to the Great Depression. Smaller banks with financial services units, unable to withstand a downturn in the economy and the stock market, failed in the 1930s even though they were diversified. The subsidiary relationship protects the commercial bank’s assets by keeping the two businesses separate.
In a large downturn, the financial services firm could go under while the owner bank would be protected. This is the concept of limited liability in action. This strategy allows the banks to receive the benefits of investing in the financial services industry without incurring excess risk.
KATHLEEN SULER
Huntington Beach
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