WASHINGTON A bipartisan group of senators proposed legislation that would reinstate the Depression-era Glass-Steagall Act, separating commercial banking from investment banking.
The senators, led by Elizabeth Warren, D-Mass., and John McCain R-Ariz., say the 1999 repeal of the Glass-Steagall Act as part of the Gramm-Leach-Bliley Act helped encourage the excessive risk-taking by banks and conflicts of interest that led to the financial crisis of 2008.
In addition, the bill aims to reduce the size of so-called “too big to fail” banks, which would in turn reduce the likelihood of future government bank bailouts.
The Senate bill would draw a line between traditional banks that hold customers’ savings and checking accounts and are insured by the FDIC and “riskier financial institutions that offer services such as investment banking, insurance, swaps dealing, and hedge fund and private equity activities.”
“Big Wall Street institutions should be free to engage in transactions with significant risk, but not with federally insured deposits. If enacted, the 21st Century Glass-Steagall Act would not end Too-Big-to-Fail. But, it would rebuild the wall between commercial and investment banking that was in place for more than 60 years, restore confidence in the system, and reduce risk for the American taxpayer,” said McCain.
“Despite the progress we have made since 2008, the biggest banks continue to threaten the economy,” Warren said.
