ARLINGTON, Va. – NAFCU has published a new white paper that calls on Congress to consider the benefits of creating a modernized Glass-Steagall Act in order to protect consumers from banks that are “too big to fail.”
The white paper, titled “Modernizing Financial Services: The Glass-Stegall Act Revisited,” examines the act's ability to help limit the financial impact “too big to fail” institutions could have on the U.S. economy during a recession or crisis scenario, according to NAFCU>
"American families and small financial institutions are still recovering of the bank-led 2008 financial crisis. 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,’” said NAFCU President and CEO Dan Berger. "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."
A Turning Point
NAFCU states in the white paper that the passage of the Gramm-Leach Bliley Act in 1999, which repealed the Glass-Steagall Act, marked a turning point in the U.S. financial system.
“Financial institutions were once again allowed to engage in risky investment banking activities through consumer deposits,” the trade association said. “This resulted in the consolidation of commercial and investment banks into large financial conglomerates and gave rise to the current ensemble of ‘too big to fail’ institutions, whose losses during the financial crisis accounted for three-fifths of worldwide losses recorded from mid-2007 to the spring of 2010.”
NAFCU said that its white paper seeks to outline how a modern Glass-Steagall Act could help limit the economic impact of “too big to fail” firms in the event of an economic downturn.
The Specifics
Specifically, the white paper suggests a 21st century Glass-Steagall Act could:
- Protect consumers against future financial crises and help end the policy of "too big to fail"
- Ensure traditional depositories and community-based financial institutions can continue to thrive in a stable financial marketplace
- Reduce the regulatory inequalities and moral hazard that arises when large banks take risks on consumer deposits to generate profits
- Improve overall financial stability in times of severe stress by separating commercial and investment banking