Sometimes Senators can move fast.
Earlier today, I reported on a confidential meeting yesterday where White House economic advisor and ex-Goldman executive Gary Cohn had dropped a bombshell by speaking in support of reverting to a version of the Glass-Steagall Act. It had once separated commercial banks from all other financial activities, but was repealed in 1999 – with terrible consequences that ended in the Financial Crisis.
The digital ink on that article wasn’t even dry when Senator Elizabeth Warren (D-Massachusetts), who’d been part of that meeting, announced today that she and three other senators – John McCain (R-Arizona), Maria Cantwell (D-Washington), and Angus King (I-Maine) – would re-introduce “the 21st Century Glass-Steagall Act.”
Senator Warren said in the statement that it would protect American taxpayers, help community banks and credit unions compete, and decrease the likelihood of future financial crises:
Reinstating Glass-Steagall has broad bipartisan support from the public and policymakers, including from President Trump, Treasury Secretary Steve Mnuchin, and National Economic Council Director Gary Cohn. Both the 2016 Democratic and Republican party platforms supported reinstating Glass-Steagall.
The legislation, first introduced in the 113th Congress [2013-2014] by Senators Warren, McCain, Cantwell and King, 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.
Senator Warren added:
“Despite the progress since 2008, the biggest banks continue to threaten our economy. 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. Reinstating Glass-Steagall has broad bipartisan support, and it’s time to get it done.”
Senator McCain said:
“Since core provisions of the Glass-Steagall Act were repealed in 1999, a culture of excessive risk-taking has taken root in the banking world, placing the financial security of millions of hardworking American taxpayers at risk.”
“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.”
“That’s why I believe 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.”
Senator Cantwell said:
“It has been clear for 60 years that separating commercial and investment banking would protect consumers from having to pay for the debts of bad financial practices of Wall Street. We need to reinstate this sharp bright line.”
“Congress should take steps to see that taxpayers across Maine and America aren’t again faced with having to bail out big Wall Street institutions at the expense of Main Street.”
Senator King said:
“This bill will advance common-sense reforms that will provide strong protections for Americans against the spillover effects of another financial institution failure.”
The statement also added some historical perspective on how the repeal happened in two ways, to purloin a phrase from Hemmingway – gradually and then suddenly:
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.
I remain more doubtful than hopeful. Introducing legislation happens all the time. As Senator Warren pointed out, she had already introduced this act in prior years, and it went nowhere. Other efforts have also been made.
Just this year, Representative Marcy Kaptur (D-Ohio) along with Reps. Walter Jones (R-North Carolina), Tim Ryan (D-Ohio), and Tulsi Gabbard (D-Hawaii) re-introduced legislation to reinstate the Glass-Steagall Act. It too went nowhere.
Nevertheless, perhaps this time, the Senators will pick up enough momentum to get this act airborne.
So is there hope? Read… Ex-Goldman Trump Advisor Drops Glass-Steagall Bombshell