The financial reform should include some way of separating banks' proprietary trading from commercial banking, although a return to regulation similar to the Glass-Steagall Act would be impractical, legendary investor George Soros wrote in the Financial Times.
"Proprietary trading ought to be financed out of a bank's own capital," Soros wrote in the opinion piece. "If a bank is too big to fail, regulators must go even further to protect its capital from undue risk. They must regulate the compensation packages of proprietary traders so that risks and rewards are properly aligned."
Hedge funds and other big investors should be monitored to ensure that they don't accumulate "dangerous imbalances," while the trading and issuing of derivatives should be as strictly regulated as that of stocks, he wrote.
"Custom-made derivatives only serve to improve the profit margin of the financial engineers designing them," Soros said, reiterating his view that some derivatives, such as credit default swaps, should be outlawed.