U.S. Senator Elizabeth Warren was definitely on target when she said banks remain too big to fail. Even though progress that has been made on financial regulation since the 2008 credit crisis, it’s clear that much more needs to be done. The Wall Street rules overhaul was a step in the right direction, but there is a gap that must be closed. Sen. Warren, a Massachusetts Democrat, said:
If Dodd-Frank gives the regulators the tools to end too big to fail, great — end too big to fail. If the regulators won’t end too big to fail, then Congress must act to protect our economy and prevent future crises.
Sen. Warren, who set up the Consumer Financial Protection Bureau (CFPB) before being elected to the Senate in 2012, used a speech at an event marking the fifth anniversary of the financial crisis to promote her proposal to re-create the Glass-Steagall Act, the 1930s law that separated commercial and investment banking.
Sen. Warren’s call to end too big to fail aligns her with Federal Reserve Governor Daniel Tarullo and Federal Deposit Insurance Corp. Vice Chairman Thomas Hoenig. While regulators and lawmakers acknowledge the problem still exists, thus far a consensus hasn’t formed around a single approach. The Senator’s bill, also sponsored by Senators John McCain, Maria Cantwell, and Angus King, a most interesting group, would separate traditional banks that offer checking and savings accounts insured by the FDIC from “riskier financial institutions.” The latter category includes companies involved in investment banking, insurance, swaps dealing, hedge funds and private equity.
Previous attempts in the Senate to revive Glass-Steagall, which was repealed in 1999 (by the Gramm-Leach Bliley Act), or otherwise limit the size of banks have failed to gain enough support to become law. As a result, nothing has been done. Sen. Warren rejected calls to wait for regulators to finish implementing Dodd-Frank before moving her bill. She had this to say:
I don’t understand the logic. Since when does Congress set deadlines, watch regulators miss most of them, and then take that failure as a reason not to act? I thought that if the regulators failed, it was time for Congress to step in. That’s what oversight means.
Repealing Glass-Steagall was a very big mistake and our country has paid a huge economic price for it. Now it’s time to do the right thing and put the provisions from that law back on the books. Hopefully, this bi-partisan bill will be passed into law and signed by the president. If you agree with Sen. Warren on this issue, contact members of the U.S. Senate and let them know how you feel. Unless they hear from folks back home, the powerful lobbyists will again prevail.
Sources: Cheyenne Hopkins, Law360.com and InsuranceJournal.com
