The government should restrict bank actitivities far more than proposed under the so-called Volcker plan, which would prevent banks from investing for their own accounts, John Bogle, founder of mutual fund giant Vanguard Group, told CNBC on Tuesday.
“I would be cheering for the return of the Glass-Steagall Act,” Bogle said, referring to the Depression-era law that banned banks from owning brokerage firms and other financial firms, among other restrictions. “It’s pretty much common sense that if you’re in the business of taking deposits, you shouldn’t be speculating on your balance sheet.”
Bogle also called for higher capital requirements for banks and stringency on the kinds of assets allowed on balance sheets. Meanwhile, the concentration of bank assets due to the rise of mergers over the last two years, is leading the country in the wrong direction, he said.
The Volcker plan, named after former Federal Reserve Chairman and current Obama adviser Paul Volcker, is intended to curb the market speculation by banks that helped trigger the recent financial crisis. While the plan gained initial support, it has been watered down somewhat in negotiations over a financial reform bill being hammered out in the Senate Banking Committee.
“It takes a powerful political force to take steps that are necessary, and I don’t see anybody, any Congress in a position to do it,” Bogle said. “We pretty much have a hung Congress because the Democrats don’t have much discipline in the House to enforce their will. And in the Senate that 60 votes becomes 59 and that stymies everything. So we go to the lowest common denominator time after time without taking the real steps, or the big steps.”
Bogle likes the idea of a financial consumer protection agency, whether it's an independent unit of the Fed or it's own entity: "We do need the consumer protection; no question."
Under the latest version of the financial overhaul bill, the agency would be part of the Federal Reserve but would include autonomous rule-writing authority.