Louisville Lawmaker Calls for Restoration of Glass-Steagall Act

Lexington, KY – A Kentucky lawmaker plans to introduce a resolution in the state senate calling on Congress to reinstate a long-time set of banking regulations. Sen. Clark Perry, D-Louisville, wants to see the Glass-Steagall Act of 1933 reinstated because of what he calls “an imminent collapse of the banking system in both Europe and the United States.”

The Glass-Steagall Act separated investment and commercial banking activities. At the time it became law, overzealous commercial bank involvement in the stock market was believed to have been the main culprit in the catastrophic stock market crash of 1929.

In 1999, Congress repealed Glass-Steagall with passage of the Gramm-Leach-Bliley Act, which ended restrictions against affiliations between commercial and investment banks.

The repeal 13 years ago troubled Sen. Clark, who is now, for the third time, asking Congress to support Congressional House Resolution 1489, which reinstates Glass-Steagall. He suggests that if it could prevent a banking crisis for 66 years, it could do it again.

“I think bringing back Glass-Steagall will rebuild our shattered confidence in the whole economy,” explained Clark, in a recent phone interview.  “Congress has talked more about the Roger Clemons steroid case than about the banking crisis of 2008 and the meltdown. We’re in a crisis. We cannot take another meltdown in this nation. I think it would be unrecoverable.”

Clark claims that stop gap measures would not be enough to separate commercial banking (depositors’ funds) from investment banking (private pools of capital). He thinks American taxpayers are at risk for the next round of bank failures with enormous risks being taken by financial service conglomerates.

“It would protect the small banks that are trying to be good stewards of the money people have (deposited) with them.”

Some banking experts disagree with the need to reinstitute those old restrictions. They feel the banking industry has enough safeguards in place today.

“If we put it back in place it wouldn’t affect more than ten or 12 institutions in the entire country. There are very few engaged both in the business of investment banking and commercial banking,” said Don Mullineaux, duPont Endowed Chair in Banking at the University of Kentucky’s Gatton College of Business and Economics. “They keep the two businesses separate themselves. I don’t think there is a lot of risk transferred from one to the other,” he asserted.

Mullineaux went on to explain that during the years Glass-Steagall was in force, none of the investment banks were regulated by the Federal Reserve. Now they all are; they are bank holding companies. In addition, the Securities and Exchange Commission regulates their underwriting activities.

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