Warren, McCain reintroduce Glass-Steagall with wide bipartisan support

Massachusetts Democrat Elizabeth Warren reintroduced legislation in the Senate on Thursday, April 6, which would essentially re-institute the Glass-Steagall Act, separating the commercial and investment operations of large financial institutions.

The bill, co-sponsored by Sens. John McCain (R-Ariz.), Maria Cantwell (D-Wash.) and Angus King (I-Maine), was formally submitted following a private meeting with White House chief economic adviser, Gary Cohen, who expressed support for a policy which forces banks to disentangle their combined trading and loan businesses.

Following the meeting, setup by Senate Banking Committee Chairman Mike Crapo (R-Idaho) and attended by the likes of Warren and Tennessee Republican Bob Corker, Cohen explained his position publicly in an interview on Friday with Bloomberg TV.

A White House official also told Bloomberg News that Cohen’s view is consistent with President Trump’s goal of simplifying banking regulations in order to grow the economy and create more jobs.

“We may be able to tailor regulation for different aspects of the financial markets and different aspects of the financial institutions and that would allow banks to get lending more aggressively to small and medium-sized companies,” Cohen said.

For over six decades, the federal government enforced financial regulations which prohibited monetary lenders from engaging in more lucrative investment activities deemed to be too risky. In 1999, however, Congress repealed the law, allowing commercial banks to invest their customers’ money in complex financial instruments like asset derivatives and mortgage-back securities.

Surprisingly, both the RNC and DNC adopted language in their official 2016 party platforms last summer calling for an updated version of the 1933 Glass-Steagall Act. Sen. Warren first introduced the 21st Century Glass-Steagall Act in July 2013, but the bill never received a committee vote.

While proponents of the legislation argue that if such regulations were kept intact throughout the 2000s, the 2008 financial crisis would have been averted, others in the financial industry are skeptical.

“Glass-Steagall wouldn’t have prevented the crisis or the housing market collapse,” contends Rob Nichols, president of the American Bankers Association. “America’s economy depends on banks of all sizes to meet the needs of a large and diverse group of clients, customers and communities.”

Sen. McCain seemingly disagrees with Nichols’ assessment, issuing a statement following the bill’s reintroduction which said that “a culture of excessive risk-taking has taken root in the banking world, placing the financial security of millions of hardworking American taxpayers at risk.”

“Even with the thousands of pages of misguided and burdensome regulations imposed by Dodd-Frank in the wake of the 2008 financial crisis, there are indications that this culture of risky behavior continues today,” he continued. “That’s why I believe it is critical for Congress to reinstate the protections that separated main street banks and investment banks.”

The financial collapse to which McCain is referring initially cost the federal government $700 billion, with public funds going to some of America’s largest financial institutions including Wells Fargo, JPMorgan Chase, Bank of America, Goldman Sachs and Citigroup.


[CNNMoney] [Bloomberg] [Benzinga via Yahoo] [Photo courtesy Shannon Stapleton/Reuters via The Atlantic]