Will Cantwell-McCain Reinstate Glass-Steagall?

Might we turn the clock back in an attempt to make our way forward? How so?

Pressure is certainly building in America to curtail, if not derail, the excessive risks embedded in our largest banks. How may these risks be unwound? Reinstating the Glass-Steagall Act, which separated commercial and investment banking activities. If this Act were to be reinstated, that would be the end of the mega-banks — Citigroup (C), JP Morgan (JPM), Bank of America (BAC), Wells Fargo (WFC) — as we know them.

Who has been harping on this? Former Fed Chair Paul Volcker. Although Wall Street and Washington turn a deaf ear to Volcker, America listens to him intently.

In September, I wrote “Volcker Launches Bombshell on Wall Street and Washington” which highlighted Volcker’s call to reinstate Glass-Steagall. That story resonated far and wide. Now we learn from the American Banker that Senators Maria Cantwell (D-WA) and John McCain (R-AZ) have introduced legislation which would once again separate commercial and investment banking activities. From American Banker’s story, Bill Offered to Reinstate Glass-Steagall:

Sens. Maria Cantwell, D-Wash., and John McCain, R-Ariz., introduced a bill Wednesday to reverse the Gramm-Leach-Bliley Act’s dismantling of the wall separating banking from the securities and insurance industries.

Under their Banking Integrity Act of 2009, commercial banks would be prohibited from affiliating with investment banks and vice versa.

The bill would also ban commercial banks from engaging in any insurance activity. The legislation would force banks to divest their commercial or investment banking operations within one year of enactment.

“America can’t afford another financial crisis,” said Cantwell in a press release.

In my opinion, the melding of commercial and investment banking activities is not the problem in and of itself. Very simply, I believe the repeal of Glass-Steagall has shown that Wall Street does not possess the leadership and risk management capabilities to properly monitor and manage the risks embedded in institutions of this size and scope.

To that end, I would be in favor of reinstating this Act. That said, we should not think that merely reinstating Glass-Steagall will solve our problems. Why? Don’t forget that Bear Stearns and Lehman Brothers (LEHMQ) were pure investment banks, both of which failed without having commercial banking activities.

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

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