Consumer Advocate, Clark Howard, Offers Advice to Fix the Banking System.

With talk of a new consumer financial regulatory authority and other significant reforms to the nation’s financial system, consumer advocate and radio host, Clark Howard, recently weighed in his suggestions to fix the nation’s banking system.

Howard has criticized the federal government for doing nothing that would prevent another near collapse of the financial system. On one of his recent shows, Howard stated, “The problem remains that nothing has been done yet to reduce the chance this could happen again.” Howard continued by stating his platform of what a banking reform plan might look like—and it’s a radically different than what’s being proposed by congress.

First, Howard says that banks should be prevented from being involved with any speculative activities. Instead, they should be taking deposits and making loans back out with the money.

Howard also believes that banks should be given until 2012 to develop a “living will” of sorts that details an insolvency plan that won’t cost taxpayers anything. In other words, if a bank fails, Howard wants to make sure that depositors get all of their money back without taxpayer funds being on the line. European regulators are currently doing this and Howard wants to bring it to the United States. Howard stated that if these banks fail to develop an exit strategy, their funds should be liquidated and be, as Howard said, “get the death penalty” by banning any new business transactions, losing their FDIC insurance and wiping their stockholders out.

Howard also wants to limit the amount of risk that financial institutions can make. Howard stated that 30:1 leveraging should be banned and that investment banks should be limited to 5:1 bets.

One of the most radical suggest that Howard had to reform the financial system was to break up nationwide banks into smaller, regional players. Howard is hoping to end the practice of letting financial institutions becoming too big to fail, but so far there has been no political push for this movement.