Warren and McCain Agree: It’s Time to Break Up Big Banks
Broadly speaking, the Glass-Steagall Act (or at least the provisions referred to here) put a wall between commercial banking and investment banking. The division was intended to prevent risky financial trading behavior from being insured by the government, which protects commercial deposits. The initial act was passed in 1933 and repealed in 1999 through the Gramm-Leach-Bliley Act because, as Bill Clinton said, the law was “no longer appropriate.”
To say that the decision was controversial would be putting it lightly. The spirit of Glass-Steagall has come back in full force in the wake of the 2008 financial crisis, and now, four senators are bringing it back to Congress.
“The four biggest banks are now 30 percent 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,” said Sen. Elizabeth Warren (D-Mass.), one of the bill’s sponsors. “The 21st Century Glass-Steagall Act will reestablish a wall between commercial and investment banking, make our financial system more stable and secure, and protect American families.”
According to the 2013 Scorpio Partnership Global Private Banking Benchmark, the four largest banks in the world by assets under management are UBS (NYSE:UBS), Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC), and Morgan Stanley (NYSE:MS). Other U.S. banking institutions in the top tier include JPMorgan (NYSE:JPM), Citigroup (NYSE:C), and Goldman Sachs (NYSE:GS).
The other sponsors of the bill are Sen. John McCain (R-Ariz.), Sen. Maria Cantwell (D-Wash.), and Sen. Angus King (I-Maine). The group introduced the bill Thursday.
“Since core provisions of the Glass-Steagall Act were repealed in 1999, shattering the wall dividing commercial banks and investment banks, a culture of dangerous greed and excessive risk-taking has taken root in the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,” said McCain.