By: Dr. Lynn Reaser
This past week, Senators Elizabeth Warren and John McCain, along with two other colleagues, introduced a bill to resurrect some of the key features of Glass-Steagall that were repealed in 1999. Glass-Steagall was a creation of the 1930s as an attempt to stem the financial excesses that had developed prior to the Great Depression.
The new legislation would reinstate the firewalls between commercial banks and investment firms. Although it might not prevent a new financial crisis, it could help. At a minimum, it might reduce the pressure on commercial bankers to sell some of the riskier investment products created by the investment side of their current firms.
Investment companies should not be prevented from assuming some risk, but such actions should not be protected by deposit insurance. Banks of all sizes have to pay premiums for that insurance, which ultimately are passed on to consumers. These consumers should not have to subsidize the activities of investment banks. Taxpayers, who could also be tapped should deposit funds be depleted, should also not be required to again bail out large or complex Wall Street firms.
Some financial firms are still too big to fail. We need to fix that problem.