Ted Simons: President obama will sign major financial reform into law this week. the reforms are aimed at practices that led to the 2008 financial meltdown. here to talk about the changes to wall street is Wayne Stutzer, senior vice president and financial consultant for rbc wealth management. good to see you again. thanks for joining us.
Wayne Stutzer: thank you.
Ted Simons: so what changes? how will the big lenders now be held accountable?
Wayne Stutzer: that's the big question because there's 350 mandated rules that still have to be worked out, regulators will get a lot of leeway. that means there'll probably be more and more, you know, input from the banks, investment banks across the country so i would say to you that this is like an architectural rendition. there's a -- where the walls will eventually go in and windows and the plugs and all the details, we probably have a two year work in process here.
Ted Simons: in terms of theory, though, how is this supposed to change things?
Wayne Stutzer: in theory, how this is supposed to change things is telling the big investment banks if they want to trade in their own accounts, they have to keep more capital aside to do that. So if they get into difficulties and lose a boatload of money trading a commodity the wrong way, the depositors won't be at risk as much.
Ted Simons: how about -- and i know there are a lot of critics who were concerned that the big banks, the banks too big to fail are still too big to fail?
Wayne Stutzer: in many ways, that's so true. we had to differentiate between commercial banks and investment banks. What we’re really talking about is a handful of "investment banks." it used to be in the old days that the investment banks and the commercial banks were separated, especially after the 1930's with the glass-steagall act. we had the nice period of peace in the banking industry for almost 50 years and then in 1998, the glass-steagall act was abolished and the investment banks and the brokerage firms could come together again and 10 years later, here is the mess.
Ted Simons: are they separate now?
Wayne Stutzer: no, they're not separate. there's not a real clear differentiation. that was what paul had hoped for but pretty hard to do that, commingle as they've been over the last 10 years. in some ways, it's not as historic as one would have liked, including myself here, but they have to cough up more capital or put more aside. of course, they're saying the big investment banks, and if we put more aside, we're not going to be able to lend as much.
Ted Simons: how about the small banks and the cost and credit to them? i know there's a lot of concern out there that small banks will be swamped with this thing?
Wayne Stutzer: with small banks, the cost to them is hiring people to help them understand the 350 mandated rules so it'll be a cost to them to hire staff to just tell them what they can and cannot do to keep them in -- to keep them from getting into trouble. that's probably the biggest cost to the small community banks around the country.
Ted Simons: the reaction around the world, i know that everyone's kind of watching what america does as far as regulation reform is concerned, maybe a lot of places are looking to mirror that reform. what are you hearing so far?
Wayne Stutzer: um, that too early to tell but it's a first step. i do believe in the 21st century where we have global markets working 24/7, that we need rules beyond the united states, because there's still a lot of thinking that hey, if you make it too tough here, the big traders will just move the game to another place. my contention is that the globe has to realize that in certain circumstances when it comes to money, you do need rules and regulations and when i hear them crying that it's going to dry up the "liquidity" or "we won't attract the best talent" i'd rather see the best talent go to intel.
Ted Simons: interesting. among the theories i've heard so many talking about, there's a variety of yap ways, that the idea without glass-steagall, you can sky rocket. you can also fall as we did in 2008. is the idea now slow and steady as she goes?
Wayne Stutzer: that's what i would hope. it's my contention that the retail investor really does feel tricked and has walked away from wall street and it's my hope that wall street will come back to main street. wall street's main purpose was a win-win where the bankers brought capital to companies, you bought stock in those companies as an investor, not a trader, which meant that you held it for more than a day or hour. hopefully the company prospered and you prospered with the stocks going higher or dividends being paid out to you. so it was a win-win. in the past few years, wall street was taken over by traders, traders have a different idea, and that's win and die.
Ted Simons: what is the average joe going to see?
Wayne Stutzer: probably not anything right now. the average joe will sit back and wait. they still feel tricked. they've not seen wall street slow down. We have the flash trade days where the market bungee jumped like back in may. So they don't buy into this yet. the average investors in a fear mode will wait to see before they come back in any big way.
Ted Simons: all right, wayne, thanks for joining us. we appreciate it.
Wayne Stutzer: you bet. thank you.