What a New Glass-Steagall Wouldn’t Do

The Glass-Steagall Act, the Depression-era rule that separated plain-vanilla commercial banking from higher-octane investment banking, has come back into the spotlight as Trump administration officials suggest that they might try to reinstate it. A glance at where financial companies get their money, though, shows why the move wouldn’t address one of the system's greatest weaknesses.

Glass-Steagall has a noble aim: Limit the support that taxpayers provide to financial institutions in the form of deposit insurance and emergency loans from the Federal Reserve. It would draw the line at activities such as trading in securities and derivatives, offering support only to banks that engage solely in businesses such as taking deposits and making loans. If anything other than a bank got into trouble, the Fed would just let it fail.