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June 01, 2017 at 09:14 AM
Is reinstating Glass-Steagall a good idea? Industry experts collectively said “no” during a Thursday panel discussion at the American Enterprise Institute in Washington. But that doesn’t mean the issue is dead politically.
“When we talk about the return to Glass-Steagall, I don’t think anybody is actually talking about going back to the Glass-Steagall Act provisions that have been subsequently changed,” said Oliver Ireland, a partner at Morrison and Foerster LLP.
“Nobody, for example, is talking about reinstating Regulation Q, that was finally knocked out in Dodd-Frank. … Even when I look at the Senate bill,” the 21st Century Glass-Steagall Act introduced in early April by Sens. Elizabeth Warren, D-Mass., and John McCain, R-Arizona, “it isn’t Glass-Steagall; it’s something different. It is separating banking from some other set of concerns rather than just investment banking,” such as insurance, securities or derivatives. “That seems to be premised on the theory that … these other businesses are risky and therefore you’re protecting the banks from the risk of those businesses.”
Also, remedying the “too-big-to-fail” element in reviving the Act, “trying to break up the big banks because the big banks had to get bailed out this last time around — big and small banks have gotten bailed out before,” Ireland continued.
“The idea of bailing out organizations isn’t limited to the big guys. The idea of ‘too-big-to-fail,’ while popular, doesn’t address financial crisis problems — these are asset quality problems.”
As to whether the proposals on the table will mirror the original Glass-Steagall Act, the “chances are zero,” Ireland opined.
The chances that Warren and McCain’s bill passes in the current administration, he continued, is “also probably zero.”
What proposals will we see on the table? Is somebody going to look at restructuring the financial system as part of the rollback of Dodd-Frank?
