Warren Joins McCain to Push New Glass-Steagall Law for BanksCarter Dougherty and Cheyenne Hopkins
U.S. Senator Elizabeth Warren and a bipartisan group of lawmakers have introduced a bill aimed at re-creating the Glass-Steagall Act, the Depression-era measure that separated commercial and investment banking.
“It will take a lot of tools to get rid of too-big-to-fail, but one of them ought to be that if you want to do high-stakes gambling, good on you, but you do not get access to people’s checking accounts and savings accounts,” Warren, a Massachusetts Democrat, told Bloomberg Television’s Peter Cook in an interview today.
The bill sponsored by Warren along with Senators John McCain, an Arizona Republican, Maria Cantwell, a Washington Democrat, and Angus King, a Maine independent, would separate traditional banks that offer checking and savings accounts insured by the Federal Deposit Insurance Corp. from “riskier financial institutions.” The latter category includes companies involved in investment banking, insurance, swaps dealing, hedge funds and private equity, according to the lawmakers’ statement released yesterday.
Warren, who announced plans for the bill at a hearing on Dodd-Frank Act implementation, told regulators testifying before the Senate Banking Committee that she didn’t expect them to back her right away.
“Based on what the regulators did to Glass-Steagall over the last 30 years, I don’t expect anyone on this panel will jump and endorse the new Glass-Steagall bill,” Warren told officials from the Treasury Department, Federal Reserve and other agencies. “Even so we’re going to keep pushing for it.”
Previous Senate attempts to revive Glass-Steagall, which was repealed in 1999, or otherwise limit the size of banks have failed to gain enough support to become law.
The Senate turned back an attempt to impose limits on the size of banks during debate over legislation that became the 2010 Dodd-Frank Act. An amendment sponsored by two Democrats, Sherrod Brown of Ohio and Ted Kaufman of Delaware, was defeated 61-33.
McCain, a former Republican presidential candidate, said he’s reintroducing a measure to restore the firewall because it’s needed to protect taxpayers and restore confidence in the financial system.
“Since core provisions of the Glass-Steagall Act were repealed in 1999, shattering the wall dividing commercial banks and investment banks, a culture of dangerous greed and excessive risk-taking has taken root in the banking world,” McCain said in the statement. McCain in 1999 voted for the Gramm-Leach-Bliley Act, which overturned Glass-Steagall.
The idea of restoring the law has also gained some support from Wall Street veterans such as Sanford “Sandy” Weill, whose creation of Citigroup Inc. ushered in the era of U.S. bank conglomerates in the 1990s. Weill has said ending Glass-Steagall’s prohibitions was a mistake.
“What we should probably do is go and split up investment banking from banking,” Weill said in July 25, 2012, CNBC interview. “Have banks do something that’s not going to risk the taxpayer dollars, that’s not going to be too big to fail.”
Weill helped engineer the 1998 merger of Travelers Group Inc. and Citicorp, a deal that led Congress to repeal the law. The New York-based company became the biggest lender in the world before taking a $45 billion taxpayer bailout in 2008 to avoid collapse.
Richard Parsons, who in 2012 ended a 16-year tenure on Citigroup’s board, said in April that the repeal of Glass-Steagall made the business more complicated and contributed to the financial crisis. Former Citicorp Chief Executive Officer John Reed apologized in 2009 for his role in building Citigroup and said banks that big should be divided into separate parts.
Some U.S. regulators back the idea of splitting up banks or limiting their size. Thomas Hoenig, the FDIC’s vice chairman, has said FDIC-backed banks should only offer “core services.” Daniel Tarullo, the Federal Reserve governor in charge of bank supervision, has urged caution on the question of breakups, but has also said rules could link caps on bank size to the size of the U.S. economy.
Other lawmakers have introduced legislation designed to limit bank size without restoring Glass-Steagall. For instance, Brown, an Ohio Democrat, and David Vitter, a Louisiana Republican, have offered a bill that would impose a 15 percent capital requirement on the largest banks.