Senator Elizabeth Warren on Thursday introduced an aggressive piece of legislation that intends to take the financial industry back to an era when there was a strict divide between traditional banking and speculative activities.
The bill, which is also sponsored by Senator John McCain, Republican of Arizona, and two other senators, is named the 21st Century Glass-Steagall Act. Its intention is to create a modern version of the seminal Glass-Steagall legislation from the 1930s, which placed firm limits on what regulated banks could do. It was fully repealed in 1999, laying the groundwork for the mergers that created some of the biggest banks of today. If passed, it could force many of those banks to let go of their trading operations.
Senator Warren’s bill is one of several that have aimed to add far more bite to the overhauls that have been put in place since the financial crisis. The bill serves as a jarring reminder to Wall Street of why it feared her election to the Senate last year.~Senator Warren seemed to acknowledge the battle ahead, but she said that having Senator McCain as an ally was an advantage. “He’s a fighter, and it’s going to take a fighter to get this Glass-Steagall bill through,” she said in a news conference.
Nostalgia for the original Glass-Steagall Act might help the new bill gain interest. Its supporters say the former law had several straightforward benefits, in contrast to the complex regulations that have been put in place since the crisis, like the Dodd-Frank Act of 2010. Glass-Steagall, which had 37 pages, was simple and so easy to put into practice, they say.
The act also kept banks that use federal deposit insurance out of potentially volatile Wall Street activities, like trading. As a result, problems at investment banks were less likely to infect regulated banks. Losses at the Wall Street operations of Citigroup and Bank of America weighed heavily on those banks during the 2008 crisis.