Glass-Steagall 2.0

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Elizabeth Warren. (Photo credit: Wikipedia)

Is a Glass-Steagall 2.0 on the way? Senator Elizabeth Warren (D-MA) introduced a bill recently week to reverse the 1999 repeal of the original legislation, which required banks to separate commercial and investment banking activities.

“The central premise behind a 21st Glass-Steagall is to say, if you want to get out there and take risks, go and do it,” Warren said in an interview, “but what you can’t do is you can’t get access to FDIC ensured deposits when you do.”

“There is no single magic bullet that is going to stop Too Big to Fail…” Warren said.  “But it moves us in the right direction … "

Warren’s bill will add fuel to the fire in the debate over how to prevent another financial crisis.

While Federal Reserve Governor Daniel Tarullo told POLITICO “there could be some benefits in having a separation of banking and commerce” he expressed skepticism when he recalled that “many of the institutions that actually provoked the most serious phase of the crisis were not within the commercial banking system at all either individually or by affiliation … the most notable examples of course would be Lehman and Bear Stearns.”

In a recent op-ed, Bloomberg View columnist James Greiff noted that “in the recent financial crisis, most banks got into trouble the old-fashioned way: Too many of their loans went bad and they lacked the capital to absorb the losses.”

But according to Greiff, “Splitting the investment banking side of their businesses from their commercial lending operations wouldn't have done much -- if anything -- to change that.”

 

 

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