Senators Elizabeth Warren (D-MA), John McCain (R-AZ), Maria Cantwell (D-WA), and Angus King (I-ME) today will introduce the 21st Century Glass-Steagall Act, a modern version of the Banking Act of 1933 (Glass-Steagall) that reduces risk for the American taxpayer in the financial system and decreases the likelihood of future financial crises.
The legislation introduced today would separate traditional banks that have savings and checking accounts and are insured by the Federal Deposit Insurance Corporation from riskier financial institutions that offer services such as investment banking, insurance, swaps dealing, and hedge fund and private equity activities.
Warren: “The 21st Century Glass-Steagall Act will reestablish a wall between commercial and investment banking.”
McCain:"Since core provisions of the Glass-Steagall Act were repealed in 1999, shattering the wall dividing commercial banks and investment banks, a culture of dangerous greed and excessive risk-taking has taken root in the banking world,"
King: “While recent efforts at financial sector regulatory reform attempt to address the ‘too big to fail' phenomenon, Congress must take additional steps to see that American taxpayers aren't again faced with having to bail out big Wall Street institutions while Main Street suffers. While the 21st Century Glass-Steagall Act is not the silver bullet to end ‘too big to fail,' the legislation's re-establishment of clear separations between retail and investment banking, as well as its restrictions on banking activities, will limit government guarantees to insured depository institutions and provide strong protections against the spillover effects should a financial institution fail."
--Excerpted from the sponsors’ press release, July 11, 2013
One of the principal lesson of the financial crisis is that the standalone Wall Street dealer firm is an nonviable business model. The reason is that dealer firms lack core deposit funding and their short-term funding is highly confidence-sensitive, even their secured funding. They need core deposits and/or access to the Discount Window.
Access every new PS commentary, our entire On Point suite of subscriber-exclusive content – including Longer Reads, Insider Interviews, Big Picture/Big Question, and Say More – and the full PS archive.
Subscribe Now
Had the Fed not granted Goldman Sachs and Morgan Stanley Fed membership and window access in October of 2008, they would have faced liquidity crises. Goldman and Morgan Stanley, like Lehman, Merrill and Bear, were standalone Wall Street dealer firms. Ditto Citigroup Securities or whatever its nom du jour is at the moment. Indeed, the investment banking units of all US banks would become standalone self-funding Wall Street dealers under the Warren Act.
The Warren Act would expel all of Wall Street from Fed membership, and cast them out into funding darkness. Expulsion would be death sentence for Wall Street. They would get low ratings and be unable to fund themselves in any market. Sayonara to Wall Street. Sayonara to the US debt and equity capital markets. Sayonara to capitalism as we know it.
It is noteworthy but unsurprising that neither of New York's senators are cosponsors of the Warren Act. Should it pass, New York City would become Detroit, and New York State would become Michigan.
It would be interesting to try to run a $16T economy with $55T of debt without a capital market. Who needs all that debt anyway? We could weed out the weak.
To have unlimited access to our content including in-depth commentaries, book reviews, exclusive interviews, PS OnPoint and PS The Big Picture, please subscribe
In the United States and Europe, immigration tends to divide people into opposing camps: those who claim that newcomers undermine economic opportunity and security for locals, and those who argue that welcoming migrants and refugees is a moral and economic imperative. How should one make sense of a debate that is often based on motivated reasoning, with emotion and underlying biases affecting the selection and interpretation of evidence?
To maintain its position as a global rule-maker and avoid becoming a rule-taker, the United States must use the coming year to promote clarity and confidence in the digital-asset market. The US faces three potential paths to maintaining its competitive edge in crypto: regulation, legislation, and designation.
urges policymakers to take decisive action and set new rules for the industry in 2024.
The World Trade Organization’s most recent ministerial conference concluded with a few positive outcomes demonstrating that meaningful change is possible, though there were some disappointments. A successful agenda of reforms will require more members – particularly emerging markets and developing economies – to take the lead.
writes that meaningful change will come only when members other than the US help steer the organization.
Senators Elizabeth Warren (D-MA), John McCain (R-AZ), Maria Cantwell (D-WA), and Angus King (I-ME) today will introduce the 21st Century Glass-Steagall Act, a modern version of the Banking Act of 1933 (Glass-Steagall) that reduces risk for the American taxpayer in the financial system and decreases the likelihood of future financial crises. The legislation introduced today would separate traditional banks that have savings and checking accounts and are insured by the Federal Deposit Insurance Corporation from riskier financial institutions that offer services such as investment banking, insurance, swaps dealing, and hedge fund and private equity activities.
Warren: “The 21st Century Glass-Steagall Act will reestablish a wall between commercial and investment banking.”
McCain:"Since core provisions of the Glass-Steagall Act were repealed in 1999, shattering the wall dividing commercial banks and investment banks, a culture of dangerous greed and excessive risk-taking has taken root in the banking world,"
King: “While recent efforts at financial sector regulatory reform attempt to address the ‘too big to fail' phenomenon, Congress must take additional steps to see that American taxpayers aren't again faced with having to bail out big Wall Street institutions while Main Street suffers. While the 21st Century Glass-Steagall Act is not the silver bullet to end ‘too big to fail,' the legislation's re-establishment of clear separations between retail and investment banking, as well as its restrictions on banking activities, will limit government guarantees to insured depository institutions and provide strong protections against the spillover effects should a financial institution fail."
--Excerpted from the sponsors’ press release, July 11, 2013
One of the principal lesson of the financial crisis is that the standalone Wall Street dealer firm is an nonviable business model. The reason is that dealer firms lack core deposit funding and their short-term funding is highly confidence-sensitive, even their secured funding. They need core deposits and/or access to the Discount Window.
Subscribe to PS Digital
Access every new PS commentary, our entire On Point suite of subscriber-exclusive content – including Longer Reads, Insider Interviews, Big Picture/Big Question, and Say More – and the full PS archive.
Subscribe Now
Had the Fed not granted Goldman Sachs and Morgan Stanley Fed membership and window access in October of 2008, they would have faced liquidity crises. Goldman and Morgan Stanley, like Lehman, Merrill and Bear, were standalone Wall Street dealer firms. Ditto Citigroup Securities or whatever its nom du jour is at the moment. Indeed, the investment banking units of all US banks would become standalone self-funding Wall Street dealers under the Warren Act.
The Warren Act would expel all of Wall Street from Fed membership, and cast them out into funding darkness. Expulsion would be death sentence for Wall Street. They would get low ratings and be unable to fund themselves in any market. Sayonara to Wall Street. Sayonara to the US debt and equity capital markets. Sayonara to capitalism as we know it.
It is noteworthy but unsurprising that neither of New York's senators are cosponsors of the Warren Act. Should it pass, New York City would become Detroit, and New York State would become Michigan. It would be interesting to try to run a $16T economy with $55T of debt without a capital market. Who needs all that debt anyway? We could weed out the weak.