Oregon Public Broadcasting

This month Washington’s Senator Maria Cantwell hopes to present a plan to the Senate Banking Committee that calls for an old-fashioned approach to bank regulation. April Baer reports it’s a plan that asks banks to, well, act like banks.

When is a bank not like a bank? When it acts like an insurance company or investment firm.

That’s what the Glass-Steagall Act  was written decades ago to prevent. So have people  heard of it?

Sean Weekland: “I haven’t actually.”

Steve Liddle:  “I know it was the fundamental way banking was regulated in the United States.”

Brenda Ray Scott:  “It’s interesting how many archaic laws, especially in terms of banking there are on the books.”

Portlanders Sean Weekland, Steve Liddle, and Brenda Ray Scott.  Sometimes archaic laws not on the books keep things interesting.

Case in point, the Glass-Steagall Act. Written in the 1930s to prevent future stock market crashes.

Steve Liddle, for one,  knows that Glass-Steagall created the banking regulator FDIC, and – here’s the key part – prescribed separation between the commercial bank that handles your checking, savings & mortgage, and the investment bank that might deal with riskier stuff - your margin loans and derivatives trading. 

Big financiers successfully campaigned for the repeal of Glass Steagall during Bill Clinton’s tenure.

Steve Liddle  “And maybe that’s part of what’s fundamentally changed, put us in the peril we’re in today.”

Senator Maria Cantwell of Washington certainly thinks so. She’s co-sponsoring a bill that might land in the Senate Finance Committee this month. In a recent press conference recorded by Cantwell’s staff she called for the revival of Glass-Steagall’s separation of banking powers.

Maria Cantwell: “For nearly 60 years, a firewall maintained the integrity of banking systems, preventing self-dealing, and financial abuses, and limited the speculation of the stock market.”

The bill would ban affiliations between commercial and investment banks. Any big conglomerates would have to split. It would prevent staff from one kind of bank from serving on the boards of the other kind.

Cantwell says the bill does not criminalize speculation – it just keeps high-risk operations away from traditional banks.

Cantwell’s proposal  has so far met about the same enthusiasm that greeted as the original Glass-Steagall act – back in the 30s. 

Many large banks say  its a terrible idea. 

Robert Snewajs is President and CEO of West Coast Bank – a relatively small community bank. He’s also chair of the Oregon Bankers’ Association. He notes this bill wouldn’t affect the Northwest’s community banks. But he’s worries Congress might go for a politically popular idea without thinking through the consequences.

Robert Snewajs:    “There’s clearly areas that could use more regulation. There’s also areas if there was clearer enforcement of existing reegulations, that’d be helpful too. But at the moment we seem prone to looking at a lot of different things.”

For example, he says, what if the bill puts large U.S. financial firms at a competitive disadvantage with overseas companies that operate without such restrictions?

Before Cantwell’s bill becomes law, she’ll have to convince Congress that it’s a good fit with larger banking oversight efforts.

Her colleague, Oregon Senator Jeff Merkley, sits on the Senate Banking committee. He agrees with the broad theory that overly-cozy bankers took bad gambles.  But he’s looking for different ways to manage risk, too.

Jeff Merkley   “It really is about making the bank system boring. And when I say the banking system, I’m referring to the lending.” 

The banking committee has not yet set a date to talk about Cantwell’s bill.