Glass-Steagall Revival a Tough Fit for Modern Banking, Analysts Say - ABI

New banking regulation discussions in Washington, D.C., are dredging up a Depression-era ghost that analysts say would fit poorly in the modern financial industry, Bloomberg News reported yesterday. Suggestions of reviving and revamping the Glass-Steagall Act, a 1933 law that separated commercial and investment banking, reignited after Bloomberg News reported on April 5 that National Economic Council Director Gary Cohn expressed support for such a separation during a private meeting with senators. The next day, Sen. Elizabeth Warren (D-Mass.) introduced her “21st Century Glass-Steagall Act of 2017,” with Sens. John McCain (R-Ariz.) and Angus King (I-Maine) as co-sponsors. Glass-Steagall has been off the books since 1999, when President Bill Clinton signed its repeal. Banking industry critics have pointed to the law’s demise as a culprit in the 2008 financial crisis. The 2016 GOP and Democratic party platforms espoused some version of a Glass-Steagall revival, a nod to populist sentiments among the electorate. But breaking up big banks would be applying old wisdom to a new financial system, said Aaron Klein, a Brookings Institution fellow in economic studies. The principle may be solid, he said, but the exact rule is not a good fit. Glass-Steagall also wouldn’t have addressed the entities and activities behind the last decade’s financial crisis, he added in an interview on Tuesday.

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