June 16, 2014
162 State and National Groups and Individuals Urge U.S. Senate to Restore Vital Consumer Protection by Passing the 21st Century Glass-Steagall Act
Separation of Commercial and Investment Banking Still a Needed Financial Reform
WASHINGTON, D.C. – On the 81st anniversary of the signing of the Glass-Steagall Act of 1933, 162 state and national organizations led by Public Citizen and Americans for Financial Reform today call on the U.S. Senate to restore a wall between ordinary banks and riskier investment banks.
In a letter, the groups ask senators to co-sponsor the 21st Century Glass-Steagall Act (S. 1282), a measure introduced by a bipartisan group including U.S. Sens. Elizabeth Warren (D-Mass.), John McCain (R-Ariz.), Angus King (I-Maine) and Maria Cantwell (D-Wash.). S. 1282 now has nine Senate co-sponsors.
S. 1282 would make the banking system simpler and safer and help bring an end to the era of “Too Big to Fail,” the letter argues. It would do so by requiring the biggest banks to downsize along functional lines and by reducing the opportunities for them to use their government guarantees and subsidies to engage in speculative activities for their own enrichment.
“By requiring banks to focus on lending to the real economy, the 21st Century Glass-Steagall Act would also help create a banking system that better serves consumers, small businesses and the overall economy,” according to the letter.
The original Glass-Steagall Act, officially known as the Banking Act of 1933, separated commercial banking, which consists of deposit taking and lending to individuals and business, from investment banking, which involves underwriting and trading assets on financial markets. This law laid the foundation for half a century without the financial panics (and resulting economic meltdowns) that had been regular events during the nation’s early history. That crisis-free period lasted until the 1980s, when Glass-Steagall began to be eroded by a wave of financial deregulation, culminating with the law’s formal repeal in 1999.
“This letter demonstrates continued broad support for lasting financial reform and putting an end to taxpayer bailouts of ‘too big to fail’ banks,” said Susan Harley, deputy director of Public Citizen’s Congress Watch division. “Banking should be about institutions serving communities by providing needed financial services to businesses and families, not about banks gambling with taxpayer-insured deposits.”
“Erosion of Glass-Steagall contributed to the financial frenzy that eventually wrecked the global economy,” said Bartlett Naylor, financial policy advocate for Public Citizen’s Congress Watch division. “Restoring Glass-Steagall not only would focus banks on traditional, prudent loan making with taxpayer-backed deposits, it would reduce the size of the mega-banks that remain too big to fail, too big to manage and even too big to jail.”
“The 21st century needs this rule for the same reason the 20th century did – to help prevent Wall Street giants from gambling with insured deposits and other taxpayer-supported advantages,” said Lisa Donner, executive director of Americans for Financial Reform.
Signatories of the letter include business associations, labor unions, law firms, faith organizations, state lawmakers, national and state consumer groups, and others.
A companion bipartisan House bill, H.R. 3711, introduced by U.S. Reps. John Tierney (D-Mass.) and Walter Jones Jr. (R-N.C.) has 10 other co-sponsors. After introduction, S. 1282 was referred to the Senate Committee on Banking, Housing, and Urban Affairs but it has yet to receive a hearing or markup.