Once again, in what is becoming an annual rite of spring, a coalition of bipartisan senators is trying to bring back the Glass-Steagall Act.
Among the reasons this latest effort may be finally poised for success, is a surprising level of support from both major political parties. President Donald J. Trump, Treasury Secretary Steve Mnuchin, and National Economic Council Director Gary Cohn have all expressed various degrees of support for the concept. Both the 2016 Democratic and Republican party platforms supported reinstating Glass-Steagall.
Senators Elizabeth Warren (D-Mass.), John McCain (R-Ariz.), Maria Cantwell (D-Wash.), and Angus King (I-Maine) jointly re-introduced their 21st Century Glass-Steagall Act on Thursday. It is intended to be “a modern version of the Banking Act of 1933 that protects American taxpayers, helps community banks and credit unions compete, and decreases the likelihood of future financial crises.”
The legislation, first introduced in the 113th Congress, would separate traditional banks that have savings and checking accounts and are insured by the Federal Deposit Insurance Corporation from riskier financial institutions that offer services such as investment banking, insurance, swaps dealing, and hedge fund and private equity activities.
The bill would clarify regulatory interpretations of banking law provisions that undermined the protections under the original Glass-Steagall and would make "Too Big to Fail" institutions smaller and safer, minimizing the likelihood of a government bailout.
"Despite the progress since 2008, the biggest banks continue to threaten our economy," Warren said in a sttaement. "For 50 years, the original Glass-Steagall Act helped produce broad-based economic growth and avoid any major financial crisis. The 21st Century Glass-Steagall Act will re-establish the wall between commercial and investment banking and make our financial system more stable and secure. [This] has broad bipartisan support, and it's time to get it done."
“Even with the thousands of pages of misguided and burdensome regulations imposed by Dodd-Frank in the wake of the 2008 financial crisis, there are indications that this culture of risky behavior continues today,” McCain said. “It is critical for Congress to reinstate the protections that separated main street banks and investment banks. Our 21st Century Glass-Steagall Act of 2017 would return banking ‘back to the basics' and go far to restore Americans' confidence in the banking system."
The original Glass-Steagall legislation was introduced in response to the financial crash of 1929 and separated depository banks from investment banks. The idea was to divide the risky activities of investment banks from the core depository functions that consumers rely upon every day.
Starting in the 1980s, regulators at the Federal Reserve and the Office of the Comptroller of the Currency reinterpreted longstanding legal terms in ways that slowly broke down the wall between investment and depository banking and weakened Glass-Steagall. In 1999, after 12 attempts at repeal, Congress passed the Gramm-Leach-Bliley Act to repeal the core provisions of Glass-Steagall.