McCain, Cantwell sponsor bank bill
Source: The Seattle Times
WASHINGTON — Two senators, including Washington state Democrat Maria Cantwell, have called for breaking up large financial firms that perform both commercial and investment banking, adding a wrinkle to already difficult Senate talks on how to regulate Wall Street.
Cantwell and Sen. John McCain, R-Ariz., on Wednesday introduced legislation that would bar commercial banks from undertaking brokerage activities. Democrats introduced a similar bill in the House.
Such a ban, a reinstatement of the Depression-era Glass-Steagall Act, which was repealed a decade ago, would strike directly at such institutions as Goldman Sachs, JPMorgan Chase, Citigroup, Bank of America and Wells Fargo, which engage in both commercial and investment banking.
"Banks need to be lending to small businesses and homeowners, not fueling risky Wall Street investment schemes," McCain said. "We must return stability, security and confidence to commercial banking for the American public."
Under the Senate legislation, financial firms operating commercial banks and investment houses would have to decide whether to focus on commercial banking or investment banking. Commercial banks would be banned from engaging in insurance activities.
A former bank regulator quickly criticized the proposal.
"Trying to split them up is crazy," said John Douglas, a former Federal Deposit Insurance Corp. general counsel who leads the bank regulatory practice at Davis Polk & Wardwell in New York. "The integration of the securities and banking function came about because of the need of large corporate customers to have integrated banking and securities services."
Cantwell, however, noted that Wall Street firms are poised to post soaring end-of-year profits and bonuses, while Main Street continues to suffer.
The president of the Independent Community Bankers of America said a growing realization has emerged in Congress the repeal may have been a mistake.
"We cruise along for 80 years without a major calamity infecting the entire financial system, and then less than eight years after the repeal of Glass-Steagall we have a financial meltdown in this country," said Camden Fine, president of the Washington, D.C.-based trade group for about 5,000 smaller U.S. banks. "That's no accident."
Rep. Maurice Hinchey, D-N.Y., introduced a version of the bill a day after House Majority Leader Steny Hoyer told reporters that renewal of Glass-Steagall is under discussion.
The House last week passed a bill that would overhaul U.S. financial rules in response to last year's $700 billion taxpayer-funded bank bailout and in an effort to prevent future crises. The legislation included government authority to break apart large, healthy firms whose size threatens the economy and to seize and unwind failed companies whose collapse in bankruptcy could disrupt the financial system.
In the Senate, members of the Banking Committee are crafting similar legislation, incorporating ideas proposed in June by President Obama. Cantwell said she and McCain will try to advance their legislation even if it's not incorporated into the Senate financial overhaul bill.
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