Washington, DC — Today, Senators Cantwell (D-WA) and McCain (R-AZ) introduced the Banking Integrity Act of 2009, which would reinstate the provisions of the Glass-Steagall Act of 1933 that ushered in the longest crisis-free period in U.S. financial history. The bill would prohibit the affiliation of Federal Reserve member banks with firms that engage principally in securities activities, and prohibit bank employees and Board members from working for securities firms.
The bill would also prohibit depository institutions from engaging in insurance-related activities. The immediate effect would be to require the large multi-function banks that were at the heart of last year's banking crisis and were the primary recipients of bailouts (such as Goldman Sachs, Morgan Stanley, Citigroup, JP Morgan Chase and Wells Fargo) to spin off their investment and insurance operations from their depository, commercial banking operations.
Demos has issued the following reports, linking the repeal of Glass-Steagall to the banking collapse of last fall, and offers policy recommendations including the ones adopted by Sen. Cantwell and Sen. McCain today.
While both of the primary financial reform proposals in the House and Senate have failed to address the structural dangers posed by "too big to fail" firms' use of consumer deposits to fund high-risk trading, Demos has supported key alternative proposals that have emerged in the House and Senate. In the House, a Glass-Steagall restoration amendment to the Wall Street Reform and Consumer Protection Act (H.R. 4173) from Reps. Inslee, Hinchey, Conyers, Tierney and DeFazio was introduced but not adopted by the Rules Committee. Rep. Inslee (D-WA) offered an amendment to limit banks' liabilities to a certain share of the U.S. Gross Domestic Product, another Demos policy recommendation. In the Senate, Sen. Bernard Sanders (I-VT) introduced a "Too Big To Fail, Too Big to Exist" Act (S.2746) on November 19, 2009.
Heather McGhee, Director of Demos' Washington office, issued the following statement on the legislation introduced today, and the momentum behind bank reform:
"The American people shouldn't be subsidizing the risk-taking of Wall Street traders, but that's exactly what has happened since the repeal of Glass-Steagall. Separating speculation from government-supported banking is a prudent reform that would protect American taxpayers and restore competitiveness to the banking sector. The Senate now has a bill that would do just that. We applaud the leadership of Reps. Inslee, Hinchey, Conyers, Tierney and DeFazio who introduced far-reaching systemic risk measures in the House that would have reinstated Glass-Steagall and required ‘Too Big to Fail' banks to break up to reduce their liabilities. We encourage more Senators to join Sens. Cantwell and McCain in taking bold steps to restore Glass-Steagall and decisively end the era of ‘Too Big to Fail'."