Government regulation works best here when it responds to the different purposes of institutions rather than to ideology. Savings and current-account banks are expected to preserve deposits and support everyday payments, while merchant and investment banks accept more risk for higher returns. Combining them allows speculative losses to threaten money households need for bills and mortgages. Institutional separation followed the crashes of the 1920s, after which the functions were kept farther apart. From the 1990s they were allowed to converge again, recreating systemic vulnerability. Regulation can preserve lessons learned from earlier crises, while forgetting those lessons can rebuild the same risk.
Notable Point · 1:38:28-1:42:56
Why savings and investment banking were separated
Separating household banking from speculative investment can prevent losses in one activity from threatening deposits and everyday payments.