Call for Glass-Steagall Revival Grows as Bank Failures Mount
The bill could be part of a new wave of debate about the Dodd-Frank Act.
An attack on part of the Gramm-Leach-Bliley Financial Services Modernization Act of 1999 is making a comeback, just as a wave of bank failures is focusing new attention on how federal regulators financial institution meltdowns.
Rep. Marcy Kaptur, D-Ohio, introduced H.R. 2714, a version of the Return to Prudent Banking Act bill, for the 118th Congress.
The bill, which has 11 Democratic co-sponsors, would bring back the old, pre-1999 Glass-Steagall Act limits on what federally insured banks could do, prohibiting them from having anything to do with securities underwriting or distribution or having ties to investment advisors or broker-dealers.
What It Means
If H.R. 2714 passed, it could end bank distribution of variable annuities and mutual funds, as well as bank involvement in investment banking.
The History
H.R. 2714 is a successor to bills Kaptur began introducing in 2009.
Sen. Elizabeth Warren, D-Mass., has persuaded colleagues — including Republicans — to co-sponsor versions of a similar bill, the 21st Century Glass-Steagall Act bill, since 2013.
Oonagh McDonald, a Cato Institute analyst who opposes Glass-Steagall restoration, has argued that opponents have exaggerated the impact of Gramm-Leach-Bliley, noting that banking regulators created many exceptions to Glass-Steagall restrictions before 1999 and continued to limit banks’ activities after 1999.
The Backdrop
The reintroduction of Kaptur’s Glass-Steagall restoration bill comes as the failures of Silicon Valley Bank and First Republic fuel policymaker conversations about financial services regulation changes.
The Financial Stability Oversight Council announced in April that it plans to give up voluntary limits it adopted in 2019, to increase its ability to act quickly to prevent damage to the U.S. financial system.
FSOC officials said, for example, that they might put a troubling company under Federal Reserve oversight immediately, rather than giving the company’s primary regulator time to address concerns.
Pictured: Rep. Marcy Kaptur, D-Ohio. (Photo: House)