NAFCU Calls for Renewed Glass-Steagall Legislation
In a white paper, NAFCU states the “lack of appropriate separation” between commercial and investment banking presents risks to the financial system.
Saying that the separation between commercial and investment banking should be restored, NAFCU today called for Congress to pass a new version of the Glass-Steagall Act.
“American families and small financial institutions are still recovering of the bank-led 2008 financial crisis,” NAFCU President/CEO B. Dan Berger, said, as the trade group released a white paper on the issue. “With support now on both sides of the political aisle, we believe Congress should seriously consider evaluating a modernized Glass-Steagall Act to reduce the impact of ‘too big to fail.’ As we look to the future and economists hint at another recession on the horizon, we need to make sure history does not repeat itself. Wall Street banks cannot be allowed to bring the financial system – and a nation full of consumers – to ruin again.”
In the white paper, NAFCU said that the “lack of appropriate separation” between commercial and investment banking presents risks to the financial system. The group said that a significant aspect of that risk involves reliance by non-bank financial firms on deposit-accepting banks to secure liquidity in times of financial stress.
“Consequently, NAFCU recommends that Congress consider the creation of a modern GSA to address bipartisan concerns related to the increasingly interconnected and interdependent shadow banking system.” the trade group said.
Passage of the Gramm-Leach Bliley Act and abolishment of Glass-Steagall allowed the largest banks to grow even more complex to accommodate “shadow banking, a process of credit intermediation that relies on deposits held at commercial banks to fund illiquid, long-term investments.”.
“Federal deposit insurance should not be used to subsidize big banks’ reckless gambles with their consumers’ deposits,” NAFCU said.
A bipartisan group of senators, including Sen. Elizabeth Warren (D-Mass.) and the late Sen. John McCain (R-Ariz.) reintroduced the “21st Century Glass-Steagall Act” last year. That legislation has not been considered by the House and Senate.
At various times, the Trump Administration has expressed interest in such legislation and in 2016, the Democratic Party Platform called for a renewal of the Glass-Steagall Act.
As expected, such efforts have been vehemently opposed by some financial services groups. However, the Independent Community Bankers of America has called for an end to too-big-to-fail banks.