On November 12, 1999, 16 years ago today, a longtime banking safety law known as the Glass-Steagall Act was effectively repealed when President Bill Clinton signed the Gramm-Leach-Bliley Act. The original Glass-Steagall law was passed in 1933 in response to the Wall Street crash of 1929 which led to the Great Depression. Its purpose was to build a wall between commercial and investment banking in order to prevent banks from using taxpayer-backed deposits to make risky investments. Much of the repeal came from regulatory decisions dating from the 1980s, but the 1999 law completed the task.
In the decades following Glass-Steagall, the nation enjoyed relative financial tranquility. Within a half-decade after the repeal of Glass-Steagall, Wall Street recklessness caused a crash that left a $12+ trillion hole in the economy.
The need to revive the “Safety Glass” separation between commercial and investment banking has been in the news quite a bit recently — for good reason. The nation’s biggest banks are bigger than ever and the risk of a financial meltdown and government bailouts to banks considered to be “too big to fail” is still all too present.
U.S. Senators Elizabeth Warren (D-Mass.) and John McCain (R-Ariz.) reintroduced their bipartisan “21st Century Glass-Steagall Act” legislation in July and bipartisan companion legislation was introduced in the House as well. In a back-to-the-future replay, even though this is a bipartisan bill with the conservative goal of protecting Federal Deposit Insurance Corporation (FDIC)-insured deposits, the bill has yet to receive a hearing – as was the case in previous congresses.
This is not some newbie policy, fresh off the turnip truck. For decades, Glass-Steagall kept banking simple: banks wrote loans for small businesses and mortgages for homebuyers. This plain vanilla commercial banking also helped hard-working families achieve the “American Dream.” That’s not the case for the high-risk, exotic financial instruments banks are still allowed to use to hedge bets for their wealthy, Big Business customers. And many of the bets turn out be between the mega-banks themselves.
In addition to ensuring that taxpayer-insured deposits are not put at risk from such risky investment banking, reinstating Glass-Steagall would make banks smaller and easier to manage — and likely even more valuable for their shareholders. (An idea advocated by Public Citizen’s own Bart Naylor, who successfully placed a shareholder resolution on the ballot during Bank of America’s annual meeting this past March to study the value of breaking up the bank.)
The American public is definitely starting to wake up and realize that 16 years of economic tumult is too long. Why should we wait any longer to determine the experiment has failed and replace the wall between normal banking and risky investment banking?
Though the momentum is definitely gathering to restore Glass-Steagall’s protections, we need your help to get Congress’ attention. Help drive the public debate on this and take action now to revive the important taxpayer protections enshrined in Glass-Steagall.
These petition signatures will be joined with those of other citizens across the U.S. and delivered to our nation’s leaders to urge our federal lawmakers to allow the 21st Century Glass Steagall Act to receive a hearing and vote. We’re also working with organizations across the country to join a letter of support for the legislation as well as coordinating with state lawmakers who are also pushing for Congress to act. Want to get involved in any of this great work that’s happening in your community? Let us know!
Together we can restore Glass-Steagall’s rules of the road for banks and cushion our economy from another crash.
Susan Harley is the deputy director of Public Citizen’s Congress Watch division