Following the 2008 financial crisis, legislators unsuccessfully tried to reinstate Glass–Steagall Sections 20 and 32 as part of the Dodd–Frank Wall Street Reform and Consumer Protection Act. Currently, bills are pending in United States Congress that would revise banking law regulation based on Glass–Steagall inspired principles. Both in the United States and elsewhere banking reforms have been proposed that also refer to Glass–Steagall principles. These proposals raise issues that were addressed during the long Glass–Steagall debate in the United States, including issues of "ring fencing" commercial banking operations and "narrow banking" proposals that would sharply reduce the permitted activities of commercial banks.
Please see the main article, Glass–Steagall in post-financial crisis reform debate, for information about the following topics: Failed 2009-10 efforts to restore Glass–Steagall Sections 20 and 32 as part of Dodd–Frank Post-2010 efforts to enact Glass–Steagall inspired financial reform legislation Volcker Rule ban on proprietary trading as Glass–Steagall lite Further financial reform proposals that refer to Glass–Steagall UK and EU "ring fencing" proposals Similar issues debated in connection with Glass–Steagall and "firewalls" Limited purpose banking and narrow banking Wholesale financial institutions in Glass–Steagall reform debate Glass–Steagall references in reform proposal debate There have been several efforts or appeals in the United States to reinstate repealed sections of the Glass–Steagall Act following the 2008 financial crisis, as well as elsewhere to adopt similar financial reforms.
Efforts to restore Sections 20 and 32 as part of Dodd–Frank During the 2009 United States House of Representatives consideration of H.R. 4173, the bill that became the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Representative Maurice Hinchey (D-NY) proposed an amendment to the bill that would have reenacted Glass–Steagall Sections 20 and 32, which had been repealed by the 1999 Gramm–Leach–Bliley Act (GLBA), and also prohibited bank insurance activities. The amendment was not voted on by the House.
On December 16, 2009, Senators John McCain (R-AZ) and Maria Cantwell (D-WA) introduced in the United States Senate the "Banking Integrity Act of 2009" (S.2886), which would have reinstated Glass–Steagall Sections 20 and 32, but was not voted on by the Senate.
Before the Senate acted on its version of what became the Dodd–Frank Act, the Congressional Research Service issued a report describing securities activities banks and their affiliates had conducted before the GLBA. The Report stated Glass–Steagall had "imperfectly separated, to a certain degree" commercial and investment banking and described the extensive securities activities the Federal Reserve Board had authorized for "Section 20 affiliates" since the 1980s..
The Obama Administration has been criticized for opposing Glass–Steagall reenactment.. In 2009, Treasury Secretary Timothy Geithner testified to the Joint Economic Committee that he opposed reenacting Glass–Steagall and that he did not believe "the end of Glass–Steagall played a significant role" in causing the 2008 financial crisis.. .
Post-2010 efforts On April 12, 2011, Representative Marcy Kaptur (D-OH) introduced in the House the "Return to Prudent Banking Act of 2011" (H.R. 129), which would have (1) amended the Federal Deposit Insurance Act to add prohibitions on FDIC insured bank affiliations instead of reenacting the affiliation restrictions in Glass–Steagall Sections 20 and 32, (2) directed federal banking regulators and courts to interpret these affiliation provisions and Glass–Steagall Sections 16 and 21 in accordance with the Supreme Court decision in Investment Company Institute v. Camp, and (3) repealed various GLBA changes to the Bank Holding Company Act.. . The bill was reported to a House subcommittees but not further acted upon before the 112th Congress adjourned..
On May 16, 2013, Senator Tom Harkin (D-IA) introduced S. 985 to restore the original Glass-Steagall Act, on the 80th anniversary of the original act.. On July 13, 2013, Senator Elizabeth Warren (D-MA) introduced alongside John McCain (R-AZ), Maria Cantwell (D-WA), and Angus King (I-ME) the 21st Century Glass–Steagall Act (S.1282). Warren wrote in a press release: "The 21st Century Glass-Steagall Act will reestablish a wall between commercial and investment banking, make our financial system more stable and secure, and protect American families." Instead of restoring repealed Glass–Steagall sections 20 and 32, the bill would separate traditional banks that offer savings and checking accounts insured by the Federal Deposit Insurance Corporation from riskier financial services like investment banking, swaps dealings, hedge funds and private equity activities, as well as from structured and synthetic products, and other products, that did not exist when Glass–Steagall was originally passed. define the "business of banking" to prevent national banks from engaging in risky activities and bars non-banking activities from being treated as "closely related" to banking. These restriction would counter regulatory loopholes for risky activities, because the Office of the Comptroller of the Currency and the Federal Reserve used these terms to allow traditional banks and bank-holding companies to engage in high-risk activities. address the issue of too big to fail: by separating depositary institutions from riskier activities, large financial institutions will shrink in size, become smaller and safer and won't be able to rely on federal depository insurance as a safety net for their risky activities. Although some financial institutions may still be large, the implicit government guarantee of a bailout will be reduced because such institutions would no longer be intertwined with depository institutions. institutes a five years transition period and penalties for any violation.
Many of her colleagues remain opposed, such as the Senators from Delaware, home to the corporate offices of many major banks.Starkey, Jonathan, "Delaware lawmakers among opponents to resurrecting bank law, " Delaware Online (Gannett), 21-Jul-2013
Volcker rule as "Glass–Steagall lite" The Dodd–Frank Act included the Volcker Rule, which among other things limited proprietary trading by banks and their affiliates.Chapman and Cutler LLP 2010. Whitehead 2011, p. 47. This proprietary trading ban was to generally prevent commercial banks and their affiliates from acquiring non-governmental securities with the intention of selling those securities for a profit in the "near term."Whitehead 2011, p. 48. Chapman and Cutler LLP 2010, p. 1. Some in 2010, have described the Volcker Rule, particularly its proprietary trading ban,. as "Glass–Steagall lite.". .
As described in prohibitions apply to dealing in and underwriting or distributing securities, Glass–Steagall restricted commercial bank "dealing" in, not "trading" of, non-government securities the bank was permitted to purchase as "investment securities." After the GLBA became law, Glass–Steagall Section 16 continued to restrict bank securities purchases. The GLBA, however, expanded the list of "bank-eligible" securities to permit banks to buy, underwrite, and deal in municipal revenue bonds, not only "full faith and credit" government bonds.
The Volcker Rule permits "market making" and other "dealer" activities in non-government securities as services for customers.Whitehead 2011, p. 50. Glass–Steagall Section 16 prohibits banks from being a "market maker" or otherwise "dealing" in non-government (i.e., "bank-ineligible") securities. Glass–Steagall Section 16 permits a bank to purchase and sell (i.e., permits "trading") for a bank's own account non-government securities that the OCC approves as "investment securities." The Volcker Rule will prohibit such "proprietary trading" of non-government securities.Whitehead 2011, pp. 48-49.
Before and after the 2008 financial crisis, banking regulators worried that banks were incorrectly reporting non-traded assets as held in their "trading account" because of lower regulatory capital requirements for assets held in a "trading account.". . Under the Volcker Rule, U.S. banking regulators have proposed that banks and their affiliates be prohibited from holding any asset (other than government securities and other listed exceptions) as a "trading position.".
In 2011, Senators Jeff Merkley (D-OR) and Carl Levin (D-MI) wrote that "proprietary trading losses" played "a central role in bringing the financial system to its knees." They wrote that the Volcker Rule's proprietary trading ban contained in statutory language they proposed is a "modern Glass–Steagall" because Glass–Steagall was both "over-inclusive" (in prohibiting some "truly client-oriented activities that could be managed by developments in securities and banking law") and "under-inclusive" in failing to cover derivatives trading..
In 2002, Arthur Wilmarth wrote, that from 1990 to 1997 the nine U.S. banks with the greatest securities activities held more than 20% of their assets as trading assets. By 1997, 40% of J.P. Morgan's revenue was from trading.Wilmarth 2002, p. 374, fn. 665. A 1995 study by the federal banking regulators of commercial bank trading activity from June 30, 1984, to June 30, 1994, concluded that "trading activities are an increasingly important source of revenue for banks" and that "[n]otwithstanding the numerous press reports that focus on negative events, the major commercial banks have experienced long-term success in serving customers and generating revenues with these activities." In reporting the study results, the American Banker described "proprietary trading" as "basically securities trading not connected to customer-related bank activities" and summarized the study as finding that "proprietary trading has been getting a bad rap.". Fein 2011, 7.06[A], p. 7-91. .
Paul Volcker supported the Volcker Rule prohibition on proprietary trading as part of bringing commercial banks back to "concentrating on continuing customer interest.". . As described in the article Decline of the Glass–Steagall Act, Volcker had long testified to Congress in support of repealing Glass–Steagall Sections 20 and 32.. In 2010 he explained that he understood Glass–Steagall as preventing banks from being principally engaged in underwriting and dealing in corporate securities. Volcker stated that with securitization and other developments he believes it is a proper bank function to underwrite corporate securities "as serving a legitimate customer need." He, therefore, did not believe "repeal of Glass–Steagall was terrible" but that Congress "should have thought about what they replace it with." Volcker's criticism was that Congress "didn't replace it with other restrictions.".