Wall Street regulators hauled before the Senate Banking panel yesterday were likely expecting compliments for their agreement on forcing big banks to boost capital. Instead, Senator Elizabeth Warren dropped a bombshell: she and three other Senators later yesterday were introducing legislation to restore the depression era Glass-Steagall Act. (The Senate co-sponsors were John McCain, Republican from Arizona, Maria Cantwell, a Washington Democrat, and Angus King, an Independent from Maine.)
As regulators from the Treasury, FDIC, Federal Reserve and Office of the Comptroller of the Currency stared back in silence, Senator Warren mapped out why the legislation was being introduced:
“…the four largest banks are now 30 percent larger than they were just five years ago and they have continued to engage in dangerous, high-risk practices. So, later today Mr. Chairman, Senators McCain, Cantwell, King and I will introduce a 21st Century Glass-Steagall Act. For half a century after the Great Depression, Glass-Steagall kept this country safe by separating the risky activities of investment banks from the basic checking and savings accounts that consumers rely on every day.
“The banks lobbied for weaker regulations and eventually the regulators started unraveling Glass-Steagall and finally in 1999 Congress repealed what was left of it. So now we propose a 21st Century Glass-Steagall so that we can return to the basics and try to keep the gamblers out of our banks.
“Now, based on what the regulators did to Glass-Steagall over the past 30 years, I don’t expect that anyone on this panel will jump up and endorse the new Glass-Steagall bill; even so, we’re going to keep pushing for it.”
The text of the new bill explains the long overdue need for re-implementing the Glass-Steagall Act: