Liliana Rojas-Suarez interviewed on CNN en Espanol

CNN en Español interviewed CGD senior fellow Liliana Rojas-Suarez on the U.S. banking system.

Liliana Rojas-Suarez discussed President Obama’s proposal for regulating U.S. banks on CNN en Español. Obama’s proposal prevents banks from using depositors’ money for operations that are extremely risky like hedge funds or capital investments. Rojas-Suarez says that a new measure for proprietary trading will have a mixed effect within banks: some of them will be affected by the measure since it represents 10% of their activities and others won´t feel the effect since it represents 1% of their activities. Nevertheless, she says it is worth considering this proposal because what they are trying to do here is to minimize the risks banks are taking when they use government bail-out money. They can trade with their clients money as long as they are not taking risks in their own accounting books.

Rojas-Suarez thinks there is no need for the banks to lose money or make less profit because they can redirect their activities. They will need to split or to recapitalize some other business as well.

She also notes that none of the regulations proposed will work alone. Any regulation is going to have to be global for two reasons:
1. There is an incentive for the affected banks (who are also working all over the world) to make their operations in other parts of the world.
2. The problem with banks are supervision. It’s not a matter of how big they are but how interconnected are.

Rojas-Suarez thinks that the chances for it to be approved by Congress are mixed. It is most likely to be approved but with some modifications. She thinks the bank fee proposed might become permanent and will just stay for the bigger banks. This money might be used to form a rescue fund to resolve banking problems when it is needed. That is, collect money in the good times and use it in bad times.