Comment on Bank Insulation

Abstract

As a discussant, I find myself in the awkward position of being in substantial agreement with both Pierce and Todd. My position is awkward because the two papers come to nearly opposite conclusions about bank insulation. James Pierce’s assessment is that bank insulation cannot become a practical reality until the Federal Reserve is taken out of the business of regulating nonbank affiliates. In contrast, Walker Todd concludes that those who advocate additional deregulation without first addressing the safety net problem can be charged either with excessive optimism or with opportunism.