As the Republican National Convention commenced in Cleveland this week, ABA President and CEO Rob Nichols responded to news that the GOP’s platform includes a call to bring back Glass-Steagall, a Depression-era law that separated depository and investment banking.
“Unlike in many parts of the world, America’s banking industry is well poised to fuel strong economic growth and job creation. Policymakers should encourage that instead of calling for a return to Depression-era regulation that would restrain banks’ ability to drive our economy forward. All of our bank regulatory agencies have agreed that Glass-Steagall would not have prevented the crisis or the housing market collapse,” Nichols said. “America’s economy depends on banks of all sizes to meet the needs of a large and diverse group of clients, customers and communities.”
Critics of the financial industry often point to the so-called “repeal” of Glass-Steagall as an underlying cause of the financial crisis even though the Gramm-Leach-Bliley Act rolled back just two sections of this Depression-era law. These two repealed sections enabled commercial banks, securities firms and insurance companies to be placed under common ownership in a financial holding company and let such institutions share directors and management. To this day, Glass-Steagall prohibits banks from conducting activities permissible for their legally separate (but affiliated) securities firms, and its limits on bank interactions with affiliates remain in place.