A new report released today by the Competitive Enterprise Institute warns against efforts by Democrats and Republicans to resurrect the Glass-Steagall Act of 1933, a Depression-era banking law that held back Main Street banks and their customers for most of the 20th Century.
“Government rules separating commercial and investment banking were a bad idea in the 1930s and a worse idea now,” said John Berlau, CEI senior fellow and co-author of the report. “A return to Glass-Steagall restrictions would leave community banks less able to offer diverse products and services, deter new banks from starting, and make American banks less competitive against foreign-owned banks.”
“Re-imposing Glass-Steagall would shield big Wall Street firms like Goldman Sachs from competition and leave commercial banks less able to weather hard financial times by offering diverse services and products,” added Daniel Press, CEI policy analyst and report co-author.
Instead of re-imposing government restrictions, the report urges Congress to take up reforms to increase competition and consumer choice in banking, such as allowing retail giants like Wal-Mart and Home Depot to start offering banking services and rolling back government restrictions imposed by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.
If lawmakers pass these pro-competition policies, the report explains, Main Street banks across America can do more to help consumers, investors, and entrepreneurs succeed.
The report also dispels the oft-repeated claim that a partial repeal of Glass-Steagall, via the Gramm-Leach-Bliley Act of 1999, led to the 2008 financial crisis. In fact, the partial repeal of Glass-Steagall lessened the financial crisis by allowing commercial banks to absorb failing investment banks.