Financial giants could be broken up under two bills introduced in the U.S. Congress last month. One of the bills has the backing of Senator John McCain. Both bills would reinstate the 1930s-era Glass-Steagall laws that barred large banks from affiliating with securities firms and engaging in the insurance business. Those limits were largely repealed in 1999, a high-water mark for deregulation. Senator McCain, who sponsored the bill with Democratic Senator Maria Cantwell, said in a statement:
It is time to put a stop to the taxpayer financed excesses of Wall Street. This country would be better served if we limit the activities of these financial institutions.
Passage of the Cantwell-McCain bill would force firms at the center of last year’s financial crisis — such as Goldman, Morgan Stanley, Citigroup, JPMorgan Chase and Wells Fargo — to spin off investment and insurance operations. A similar measure was offered by six House Democrats, including Representatives Maurice Hinchey, Peter DeFazio, Jay Inslee and John Tierney. The bills come as Congress debates a sweeping overhaul of financial regulation more than a year after the severe banking and capital markets crisis rocked economies worldwide.
Restoring Glass-Steagall should have broad appeal, but it may be difficult to win passage in the Senate. I have believed for a long time that it was a mistake to repeal Glass-Steagall. The Act was largely repealed in 1999 under the Gramm-Leach-Bliley Act as the result of intense lobbying pressure from bankers, including those wanting to merge the financial firms that later came to comprise Citigroup.
Today, supporters of stronger regulation of Wall Street and the banks say it is no coincidence that America has suffered a series of financial crises since deregulators gained the upper hand politically in Washington in the 1980s. Rep. Hinchey had this to say:
The repeal of Glass-Steagall has exposed the U.S. economy to a level of risk that is simply unacceptable. Congress ignored history in 1999 when it repealed the Glass-Steagall Act and the American people have been forced to pay the price while bailing out these mega-banks, which should have never existed in the first place.
The American people will benefit if Congress can withstand pressure from the lobbyists and pass this legislation.
Source: Insurance Journal
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