Sen. Warren proposes Glass-Steagall 2

July 12, 2013 at 4:30 PM
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WASHINGTON, July 12 (UPI) -- Sen. Elizabeth Warren, D-Mass., said it was time to resurrect the Glass-Steagall Act that for decades separated investment banking from personal banking.

"Over the past five years, we've made real progress," Warren said. However, she added, "The bigger banks continue to engage in dangerous high-risk practices that could once again put our economy at risk."

Proponents of a new version of the Glass-Steagall Act of 1933 say it would break up the huge banks that are so large, a failure at one could create a massive financial crisis and potentially an economic downturn. The bill proposed by Warren and co-sponsored by Sen. John McCain, R-Ariz., called the 21st Century Glass-Steagall Act, would force banks with federally insured consumer deposits to give up their trading operations, the Times said.

Realistically, however, "it seems mainly symbolic," said Professor Phillip Swagel at the University of Maryland School of Public Policy.

The chances of passing the bill are slim, but the bill may force bank regulations back into the foreground, he said.

Currently, not only would big banks lobby hard to keep their investment divisions, but regulators such as the U.S. Treasury Department and the U.S. Federal Reserve would be unlikely to get behind the bill, the Times said.

Some also say the major flaw is that the Glass-Steagall Act would not have prevented the 2008 financial crisis, given two of the biggest financial firm collapses involved investment banks Lehman Brothers and Bear Stearns, which would not have been subject to the law.

The original Glass-Steagall Act was in place from 1933 to 1999 when it was repealed.

Through those years there were no financial crises and the gross domestic product grew each year by an average of 4 percent.

"For about 70 years, Glass-Steagall managed to keep the riskier, more damaging part of Wall Street away from what should be the boring, straightforward side of finance. It was the height of stupidity repealing Glass-Steagall," said Barry Ritholtz, chief executive officer of asset management firm FusionIQ.

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