Recently, Senator Elizabeth Warren filed a bill that would impact banking regulations. This 21st Century Glass Steagall Act would separate traditional banking activities, such as checking and savings from riskier activities, such as private equity and hedge funds.
Elizabeth Warren said that big banks are still posing a threat. She also stated that, “The four biggest banks are now 30% larger than they were just five years ago, and they have continued to engage in dangerous, high-risk practices that could once again put our economy at risk.”
If Warren’s bill passes, the big banks would have five years to start splitting up. These banks argue that they need to stay large in order to stay competitive. The head of the biggest banks have already spoken up against the bill as well as against this kind of regulation in the past.
Jamie Dimon, JP Morgan’s (NYSE:JPM) CEO, said “There are huge benefits to size. We bank Caterpillar in like 40 countries. We can do a $20 billion bridge loan overnight for a company that’s about to do a major acquisition. Size lets us build a $500 million data center that speeds up transactions and invest billions of dollars in products like ATMs and apps that allow your iPhone to deposit checks. We move $2 trillion a day, and you can see it by account, by company. These aren’t, like, little things. And they accrue to the customer. That’s what capitalism is.
If the bill passed, it would have a huge impact on large banks. For instance, this year JP Morgan’s second-quarter profits have surged thanks to investment banking even though consumer banking is not doing too well.
The new bill would mean that JP Morgan and other large banks would need to split up these different divisions. That would make it harder for JP Morgan to compensate for losses or lower profits in certain sectors. The big banks are definitely going to be fighting Warren’s bill.