Senators Elizabeth Warren (D-Mass) and John McCain (R-Ariz.) have joined forces to unveil the 21st Century Glass-Steagall Act, which aims to create a definite divide between speculative activities and traditional banking. This is a modern day revision of the original Glass-Steagall legislation from the 1930’s, which placed definite limits on the types of business that regulated banks were allowed to conduct. That act was repealed 14 years ago. Then, the mergers that would form the biggest banks existing today happened. Senators Angus King (I-Maine), and Maria Cantwell (D-Wash.) also are co-sponsoring this bill.
Warren, who is spearheading the legislation, noted that the nation’s largest banks continue to take part in risky practices that could again jeopardize our economy. She said she is prepared for a tough fight, seeing as it may be hard to drum up enough support in Congress or get the Treasury Department or Federal Reserve to jump on board. If the 21st century version of Glass-Steagall becomes law, a lot of these banks might have to give up their trading operations.
Fond feelings for the 1993 Glass-Steagall Act could help build interest on this new version. The original act, unlike the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was just 37 pages long and easy to implement. It also made sure that banks that use federal deposit insurance did not get involved in volatile activities on Wall Street, including certain kinds of trading. No crisis like the one that happened in 2008 occurred while the original Glass Steagall Act was in place—although some critics don’t believe that it would have stopped that economic meltdown from happening.
Under the 21st Century Glass-Steagall Act, banks that accept deposits that are federally insured would have to concentrate on traditional lending and, once again, couldn’t get involved in high-risk securities trading. Senator McCain, who actually voted to overturn the original Glass-Steagall when he voted for the Gramm-Leach Bliley Act in 1999 is now lamenting that when key terms of the 1933 Act were repealed, the wall existing between commercial and investment banks broke down, causing “greed” and too much “risk-taking” to grow in the world of banking.
The idea of reviving the law has also gained the support of certain Wall Street old timers, including Sanford “Sandy” who created Citigroup (C) in the 1990s. He believes that getting rid of the prohibitions established by the first Glass-Steagall Act was a mistake. Last year, in a CNBC interview, Weill said that he thought that separating banking from investment banking would be a good move. Ex-Citigroup CEO John Reed even apologized for his part in growing the bank and said that firms that large should be divided up. Also, Richard Parsons, a former long-timer on Citigroup’s board, said that no only did repealing Glass-Steagall complicated the bank business but also, this played a part in allowing the financial crisis to happen. Even certain regulators, including FDIC vice chairman Thomas Hoenig, has said that banks backed by the agency should only provide “core services.”
Warren and McCain try to bring back Glass-Steagall, MSNBC, July 11, 2013
S.1282 – 21st Century Glass-Steagall Act of 2013, Congress.gov
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