The tide is turning in the Glass-Steagall debate

Six months ago, Glass-Steagall, the Depression-era law that dictated strict separation between commercial and investment banks, was out of fashion, with only commentators on the far left advocating for its revival. But how quickly tides of favor can turn: Now it’s becoming mainstream.

In a hearing on systemic risk regulation in the House Financial Services Committee today, lawmakers probed bank regulators for their reactions to the groundswell of support for separating safer commercial from riskier investment banking, as former Federal Reserve Chairman Paul Volcker and Bank of England Governor Mervyn King have both suggested. The regulators, including Federal Deposit Insurance Corp. Chairman Sheila Bair and Comptroller of the Currency John Dugan, agreed that thicker walls between commercial and investment banking were needed, though they stopped well short of supporting a return to Glass-Steagall.

Still, the change is noticeable. And it’s momentous in the land of economic commentary, where even the Financial Times’ conservative thinkers are taking up the issue. A case in point is John Gapper’s column in today’s FT in which he suggests not just a division of the current large conglomerates into two separate business types but a three-way split.

Regulatory reform may be coming in small, halting steps, but this shift in discourse is impressive.