Bring back Glass-Steagall with modern twist, say senators

By:  Wall Street Journal MarketWatch - Steve Goldstein
Source: Wall Street Journal MarketWatch

Sens. Elizabeth Warren, John McCain, Maria Cantwell and Angus King say they are introducing a new version of the Glass-Steagall Act to separate banks from their investment-banking arms. Read text of the 21st Century Glass-Steagall Act.

The bipartisan group of legislators say they want to bring back the core of the 1933 law that was repealed in 1999, which would separate commercial banking activities insured by the Federal Deposit Insurance Corp. from institutions that offer services such as investment banking, insurance, swaps dealing, and hedge fund and private-equity activities. (McCain was the only of the four legislators who was in the Senate in 1999; he voted to repeal Glass-Steagall.)

“Big Wall Street institutions should be free to engage in transactions with significant risk, but not with federally insured deposits,” said McCain, the Arizona Republican and former presidential candidate, in a statement.

“Despite the progress we’ve made since 2008, the biggest banks continue to threaten the economy,” added Warren, the Massachusetts Democrat who advocated the creation of the agency now called the Consumer Financial Protection Bureau.

The bill represents the newest entry into bank reform. It’s not even the first bipartisan legislation, as Louisiana Republican David Vitter and Ohio Democrat Sherrod Brown have introduced rules aimed at increasing capital for big banks. (Brown talked about the legislation in an interview with MarketWatch earlier this week.)

There of course was a gigantic piece of bank reform legislation passed, the Dodd-Frank Act, that regulators have been slow to implement and that Republicans have tried to repeal.

While the chances are slim the new legislation would make it through the Senate, let alone the Republican-controlled House, Brown says the atmosphere helps to put pressure on regulators to take action.

Five of the big six publicly traded banks were higher Thursday, with Wells Fargo down a fraction ahead of their earnings on Friday.