CEI Expert Warns Against Reviving Glass-Steagall

A resuscitation of Glass-Steagall Act has been added to the 2016 GOP platform, in a move supported by the Trump campaign. Glass-Steagall prohibited commercial banks from engaging in the investment business. It was repealed in 1999. CEI financial policy expert John Berlau says bringing it back is a terrible idea that will hurt Main Street banks.

"Donald Trump is the latest politician, including Democrat Sen. Elizabeth Warren (D-Mass), to come out in favor of bringing back the 1930s relic known as the Glass-Steagall Act. The politicos argue that the law, which separated commercial and investment banking, will rein in Wall Street and help Main Street.

Nothing could be further from the truth. There is no credible evidence that Glass-Steagall's partial repeal in 1999 had anything to do with the financial crisis, but there is plenty of evidence that reviving it will hurt Main Street banks like those operating in the GOP convention city of Cleveland.

Cleveland-based KeyBank was one of many commercial banks that expanded into investment banking and wealth management in the wake of Glass-Steagall's repeal. Bringing the law back would send investment banking away from cities like Cleveland and further concentrate it on Wall Street. We should learn from the experience of Dodd-Frank's Volcker Rule, often called "Glass-Steagall lite," which was also sold as going after Wall Street but has become one of the biggest burdens on community banks.

If delegates to the GOP and Democratic conventions really wanted to unburden Main Street banks while discouraging excessive risk-taking, they would back the Financial Choice Act, which repeals burdensome regulations in exchange for higher capital standards. This approach is the way to make Main Street banking great again!"

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