Sens. Elizabeth Warren (D-Mass.), John McCain (R-Ariz.), Maria Cantwell (D-Wash.) and Angus King (I-Maine) have re-introduced what they call the “21st Century Glass-Steagall Act,” a bill that would reintroduce the separation between commercial and investment banking.
The bill is aimed at “reduc[ing] risks to the financial system by limiting banks’ ability to engage in certain risky activities and limiting conflicts of interest, to reinstate certain Glass-Steagall Act protections that were repealed by the Gramm-Leach-Bliley Act, and for other purposes.”
The bill would prohibit institutions insured by the Federal Deposit Insurance Corp. (FDIC) from being or becoming affiliated with, or having a common ownership or control with, any insurance company, securities entity or swaps entity. The institutions would also be prohibited from engaging in any activity that would cause it to qualify as an insurance company, securities entity or swaps entity.
Individuals who are officers, directors, partners or employees of any insurance company, securities entity or swaps entity would be prohibited from simultaneously serving as officers, directors, employee or any other institutions-affiliated party of any insured depository institution.
The bill also amends certain definitions such as “business of banking” to prevent national banks from engaging in risky activities and will aim to address “Too Big to Fail.”
“Despite the progress we’ve made since 2008, the biggest banks continue to threaten our economy,” Warren said. “The biggest banks are collectively much larger than they were before the crisis, and they continue to engage in dangerous practices that could once again crash our economy.”
McCain does not think the bill would end “Too Big to Fail” but may 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“Since core provisions of the Glass-Steagall Act were repealed in 1999, shattering the wall dividing commercial banks and investment banks, a culture of dangerous greed and excessive risk-taking has taken root in the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. “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 over 60 years, restore confidence in the system, and reduce risk for the American taxpayer.”
The Glass-Steagall Act was passed in 1933 as a response to the Great Depression and was repealed in 1999 by the Gramm-Leach-Bliley Act during the Clinton Administration.