The Obama administration has proposed separating the banks proprietary trading activities from their federally subsidized deposit-gathering and lending ones in order to prevent further banking failures in the future. Obama has also proposed a rule that increases the amount of capital that banks should hold against their losses. However, many, including Warren Buffet, chairman of Berkshire Hathaway say that it is the behavior of the CEOS and directors that needed to change. He believes that by putting some of their own wealth at stake they will make more responsible decisions for the companies.
2 comments:
I think that the behavior of CEOS and directors need to be examined more. They are making huge amounts of money even with the bank failures. If their own salaries are threatened then I think this would help for them to make better decisions. As of now, it seems that they may be making riskier decisions because the government can always bail them out. This seems like a trend going on where CEO and director salaries are being questioned so their behavior is getting better analyzed than before.
I think the extension of FDIC coverage to 2013 further promotes risky behavior by the "too large to fail" financial institutions and I don't really see any particular way the government could make CEOs more liable for their actions. I think we forget that CEOs are employees and thus if they run into problems, it should be the companies responsibility to remove from position a person who has been performing sub-par. I wonder if the measures being taken by President Obama will assist in at least making firms more careful in their decisions.
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