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senate Bill S. 881

Reinstating Glass-Steagall: Should Commercial and Investment Banks be Separated?

Argument in favor

For a half-century after the Great Depression commercial and investment banks were separated, and the U.S. financial sector avoided a significant crisis. Bringing back that separation would be a positive for banks and protect taxpayers from bailing out banks that took too many risks.

vlsalreno's Opinion
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06/16/2017
Good first step. However if I'm not mistaken congress has also voted to repeal Dodd-Frank. We can't allow that. We need regulations because you can't count on corporation and banks to do the right thing. They have to be forced.
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Rachel 's Opinion
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06/16/2017
I'm a financial planner and spent ten years prior to that working as an equity research analyst for global diversified financial services firms. Our incentive structure is designed to promote theft and corruption rather than sound financial management. The boom-bust cycle was mitigated significantly for the better part of a century because of Glass-Steagall and other legislation. Your constituents understand economics and history, and we lived through the S&L crisis and and subsequent cycles. Reinstatement of tight controls is for the greater good.
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Rebecca's Opinion
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06/16/2017
I do not want the financial institutions to be as vulnerable as they were before. Those regulations need to be reinstated. It is the responsible action that must be taken!
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Argument opposed

Breaking up large, multi-faceted financial institutions is going to have a negative impact on the economy, as they'll now have fewer resources to facilitate the type of lending that they now make. Not only that, but this bill by itself doesn’t end the threat to taxpayers posed by “too big to fail” banks.

Mart's Opinion
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06/16/2017
Erase all regulations, but then absolute liability for fraud, no bailouts, and prison for financial CEOs
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Chase's Opinion
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06/16/2017
Nothing in Glass-Steagall would've prevented the financial crisis nor helped the recovery. It just raises regulatory burdens making investments more expensive for the common person. Unless you believe that only the rich should be able to afford to invest, oppose this law.
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Jackson's Opinion
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06/16/2017
Even Elizabeth Warren admits this is mostly a symbolic measure. Canada has never separated their investment and commercial banks and their banks made it out of the Recession better than ours. If anything, this would make it much easier for investment banks to fail. Most of the banks that failed in the US in the Great Recession were investment banks with no commercial component. Diversification means more safety in your retirement savings, and the same logic applies to big banks.
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bill Progress


  • Not enacted
    The President has not signed this bill
  • The house has not voted
  • The senate has not voted
      senate Committees
      Committee on Banking, Housing, and Urban Affairs
    IntroducedApril 6th, 2017

What is Senate Bill S. 881?

This bill would seek to reduce risk in the financial system and the likelihood of future financial crises by implementing a number of regulatory reforms — most notably preventing banks that consumers use for their checking and savings accounts from offering riskier financial services. It would reinstitute repealed provisions of the Glass-Steagall Act that required the separation of commercial and investment banking, large financial institutions that currently offer both services would have to break up into smaller, distinct units.

Traditional banks that offer consumers checking and savings accounts and are insured by the Federal Deposit Insurance Corporation would be prohibited from offering more complex and risky financial services such as:

  • Investment banking — like buying and selling securities or other financial products;

  • Insurance;

  • Proprietary trading;

  • Hedge fund and private equity activities.

Banks and bank holding companies would be prohibited from owning or otherwise controlling a nonbanking entity that offers the types of financial services listed above, closing an existing exemption which allows those activities.

Impact

Consumers of financial products; banks, investment banks, hedge funds, and private equity firms; and federal financial regulators.

Cost of Senate Bill S. 881

A CBO cost estimate is unavailable.

More Information

In-Depth: Sponsoring Sen. Elizabeth Warren (D-MA) cited the need to keep banks from engaging in risky investments like those which sparked the 2008 financial crisis as the primary reason she introduced this bill:

“Despite the progress since 2008, the biggest banks continue to threaten our economy. For fifty years, the original Glass-Steagall Act helped produce broad-based economic growth and avoid any major financial crisis. The 21st Century Glass-Steagall Act will re-establish the wall between commercial and investment banking and make our financial system more stable and secure. Reinstating Glass-Steagall has broad bipartisan support, and it's time to get it done."

Sen. John McCain (R-AZ), the lead cosponsor of this bill, concurred that removing the barrier between commercial and investment banks spurred excessive risk taking, and that taxpayers shouldn’t be on the hook when those investments go bad:

“Since core provisions of the Glass-Steagall Act were repealed in 1999, a culture of excessive risk-taking has taken root in the banking world, placing the financial security of millions of hardworking American taxpayers at risk. Even with the thousands of pages of misguided and burdensome regulations imposed by Dodd-Frank in the wake of the 2008 financial crisis, there are indications that this culture of risky behavior continues today. That's why I believe it is critical for Congress to reinstate the protections that separated main street banks and investment banks.”

Former President Bill Clinton, who signed the Gramm-Leach-Bliley Act into law and repealed the Glass-Steagall Act, said during the 2016 presidential campaign that there isn't "a single, solitary example that it had anything to do with the the financial crash." Politifact rated his claim as "Mostly True."

This legislation has eight cosponsors — including five Democrats, two Independents, and one Republican.


Of Note: While this bill is known as the 21st Century Glass-Steagall Act, the original Glass-Steagall Act was passed in 1933 in response to conditions in the financial sector that precipitated the Great Depression. Its primary provision — the separation of commercial and investment banks — was repealed in 1999 with the passage of the Gramm-Leach-Bliley Act.


Media:

Summary by Eric Revell
(Photo Credit: Flickr user thetaxhaven)

AKA

21st Century Glass-Steagall Act of 2017

Official Title

A bill to reduce risks to the financial system by limiting banks' ability to engage in certain risky activities and limiting conflicts of interest, to reinstate certain Glass-Steagall Act protections that were repealed by the Gramm-Leach-Bliley Act, and for other purposes.

    Good first step. However if I'm not mistaken congress has also voted to repeal Dodd-Frank. We can't allow that. We need regulations because you can't count on corporation and banks to do the right thing. They have to be forced.
    Like (162)
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    Erase all regulations, but then absolute liability for fraud, no bailouts, and prison for financial CEOs
    Like (25)
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    Share
    I'm a financial planner and spent ten years prior to that working as an equity research analyst for global diversified financial services firms. Our incentive structure is designed to promote theft and corruption rather than sound financial management. The boom-bust cycle was mitigated significantly for the better part of a century because of Glass-Steagall and other legislation. Your constituents understand economics and history, and we lived through the S&L crisis and and subsequent cycles. Reinstatement of tight controls is for the greater good.
    Like (100)
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    I do not want the financial institutions to be as vulnerable as they were before. Those regulations need to be reinstated. It is the responsible action that must be taken!
    Like (70)
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    Share
    This is absolutely the most effective and efficient way to address the too big to fail problem. First of all,banks today are not only too big to fail but they are also too big to regulate. Retail depositors and taxpayers should not have to involuntarily take up the risk of exotic investment products. Secondly, by limiting investment options for commercial banks, small and mid sized businesses will get more attention and capital allocated to them.
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    A good step towards breaking up too big too fail financial corporations.
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    Why does anybody who was alive in 2008 even need to ask this question? Merged commercial and investment banks take bigger risks with money not their own, and commit bigger fraud, and hold bigger and bigger segments of society hostage to their corporate interests. Hell YES, they need to be separated! AND more tightly regulated, to keep them from turning cannibal, as well! And we need to put Congress on Cobra and Medicaid too. At once.
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    This is a no brainer. Banks should not be able to bet using people's savings as collateral.
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    Good first step. However if I'm not mistaken congress has also voted to repeal Dodd-Frank. We can't allow that. We need regulations because you can't count on corporation and banks to do the right thing. They have to be forced.
    Like (15)
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    Nothing in Glass-Steagall would've prevented the financial crisis nor helped the recovery. It just raises regulatory burdens making investments more expensive for the common person. Unless you believe that only the rich should be able to afford to invest, oppose this law.
    Like (13)
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    Even Elizabeth Warren admits this is mostly a symbolic measure. Canada has never separated their investment and commercial banks and their banks made it out of the Recession better than ours. If anything, this would make it much easier for investment banks to fail. Most of the banks that failed in the US in the Great Recession were investment banks with no commercial component. Diversification means more safety in your retirement savings, and the same logic applies to big banks.
    Like (12)
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    Yes, they should. If it was a good enough measure to undertake during the Great Depression as one of the first New Deal reforms to address precisely the root of the financial collapse in 1929, then it's good enough to reimplement. It would have clearly saved ordinary Americans from the destruction wrought by risky investment bank interactions in the Great Recession, and would have eliminated essentially the only reasonable argument against letting the Wall Street investment banks collapse during 2007-8 and viewing them as "too big to fail" (in need of rescue by taxpayer money). They were only too big to fail because taxpayers would have lost money in commercial banks (like what happened in the Great Depression). With Glass Steagall still in place, the big banks could have failed (as they deserved to do by none other than the logic of free market economics) and commercial bank holdings would have been protected.Moreover, Donald Trump campaigned — as did Bernie Sanders — on the promise of a "21st century Glass-Steagall Act," and it was put into the Republican Party platform. And yet now, Trump and Mnuchin are blatantly betraying this key campaign promise (as Trump is doing with so many others).
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    The private sector won't police itself. Regulatory guidance - a system of checks and balances - is necessary. And in many ways, regulations spur innovation and the economy.
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    Yes! Yes! Yes!
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    We know why the original Glass-Steagall was enacted, to help ameliorate the boom-bust cycle our financial institutions were experiencing on a far too regular basis, causing the loss of untold millions of dollars in savings and investments by average Americans and American businesses. Regulations were put in place to calm down the chaos of wild speculation and gambling of customers' money. And it worked. Following the enactment of Glass-Steagall, we had decades of financial stability previously unheard of and, yes, banks were still able to earn plenty in profits. These rules, though, were chipped away at, the regulations weakened. Banks were again empowered to take money from peoples' savings and loans and use that money for wild speculation - basically gambling - and, if the money was lost, the customers were in the line, not the banks. We basically socialized their losses and, with that safety net saving them from most repercussions of their irresponsibility, they grew more reckless and developed ever greater incentives to play even faster and looser with our money. And then we had the crash of 2008 and it seemed we all woke up to the fact that we'd created monsters. These banks, acting in their own self interest, were nearly able to bring down our economy and that of the entire world. So, we created Dodd-Frank and, even though it was watered down, it still gave positive results. Banks still made money, but we customers had some assurances that we wouldn't lose our money and we taxpayers were somewhat relieved that we might not again have to socialize the future massive losses caused by those seeking to line their own pockets by again having to bail them out as too big too fail. And yet here we are again, barely 9 years after the crisis, pretending it all never happened, that we didn't see what we all saw, that we did t experience what we all experienced and claiming that this time it will be different. Dear elected representatives, if you want that sweet, sweet financial industry money, I suggest you go work directly with those institutions, but DO NOT use our Congress as their field office. Stop loosening regulations that protect us, our money and our economy and enact even stricter, fairer legislation to ensure we put consumers first. Speaking of, please defend your attacks on the CPB, though this time using actual facts. Staff and fund the CPB properly, cease efforts to assert political control over its actions and realize that it has already saved consumers billions. If you think the CPB should shut its doors, explain why you think consumers need fewer protections.
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    This is very important to the lower and middle class
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    A bank should be beholden to its depositors and not to investors.
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    When I deposit money, it's not an unconditional loan to the bank. There is no reason they should be allowed to simply gamble my savings away.
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    We don't need another financial crisis. This is a good first step.
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    This is a sensible move, so I'm not expecting many republicans will vote for this.
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