"21st Century Glass-Steagall Act"

HOW IT CAME TO BE?

Content to come soon...

THE AIM?

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KEY ASPECTS?

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WHAT HAPPENED?

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THE BETTER BANKING LAW VIEW:

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Richard Fisher's Plan of 2013

HOW IT CAME TO BE?

While the Dodd-Frank Wall Street Reform and Consumer Protection Act has been in effect since 2010, there is no guarantee that taxpayer-funded bailouts of financial institutions deemed systemically "Too Big to Fail" are a thing of the past. The current operating method of "Too Big to Fail" institutions is that they can take excessive risks that drive revenue growth, without regard for risk management and market discipline. Executives and shareholders benefit from the upside (and all bank bond holders were bailed out in 2008), while taxpayers bear the burden on the downside. Many view Dodd-Frank's 2,319 page "work in progress" as ineffective, burdensome, difficult to interpret (even for regulators), and the costs are prohibitive to banking institutions that are not "Too Big to Fail". 

Richard W. Fisher, then president of the Federal Reserve Bank of Dallas, outlined the problem and proposed a plan before the Committee on Financial Services, U.S. House of Representatives Hearing on "Examining How the Dodd-Frank Act Could Result in More Taxpayer-Funded Bailouts". The speech titled "Correcting ‘Dodd-Frank’ to Actually End ‘Too Big to Fail’" was delivered in Washington, D.C. on June 26, 2013. 

What does it do?

Richard Fisher's three pronged plan entails breaking those financial institutions deemed "Too Big to Fail" into smaller pieces, so that in the case of crisis, no single institution could bring down the entire financial system and economy. 

First, the Federal safety net (including deposit insurance and access to the Federal Reserve's discount window) would be clearly allocated to only traditional commercial banks - not nonbank affiliates of bank holding companies or the holding companies themselves.

Below is a simple graphic of Mr. Fisher's proposed basic organizational structure for a typical financial holding company.

Second, a clear, legally binding disclosure would be signed by customers, creditors and counterparties of all nonbank affiliates and the parent holding companies acknowledging and accepting awareness that their investments are not guaranteed by the government. 

Finally, all corporate entities of the largest financial holding companies will be restructured to ensure a speedy bankruptcy process. Those banking entities would be downsized to an appropriate size, complexity and geographic footprint, rendering them "too small to save." 

All banks would be subject to regulatory oversight.

The goal is financial stability, transparency, a return of marketplace discipline, principles of fair and open competition, and a level playing field for all. 

WHAT HAPPENED?

Fisher's plan is very straightforward, would protect U.S. Taxpayers and is decidedly nonpartisan. Therefore, this plan was very favorably received by Congress. Unfortunately, as with so many other sound plans brought before that body in recent years, its adoption appears not to have meaningfully advanced.

THE BETTER BANKING LAW VIEW:

We at Better Banking Law are whole heartedly supportive of Richard Fisher's Plan. However, sometimes the perfect can be the enemy of the good. Our plan is not as far reaching as Mr. Fisher's, in that ours does not require the breaking up of the "Too Big to Fail" banks, but does require unbreachable firewalls between the Federally insured banking subsidiary of the bank holding company and it's investment banking subsidiaries. Should Congress adopt Mr. Fisher's plan, we would certainly applaud that action. But if they balked at the breakup aspect, we would settle for our firewall solution, rather than the continuation of the very dangerous status quo.

THE WALL STREET REFORM AND
CONSUMER PROTECTION ACT OF 2010
AKA
DODD-FRANK

HOW IT CAME TO BE?

Duis autem vel eum iriure dolor in hendrerit in vulputate velit esse molestie consequat, vel illum dolore eu feugiat nulla facilisis at vero eros et accumsan et iusto odio dignissim qui blandit praesent luptatum zzril delenit augue duis dolore te feugait nulla facilisi. Nam liber tempor cum soluta nobis eleifend option congue nihil imperdiet doming id quod mazim placerat facer possim assum. Typi non habent claritatem insitam; est usus legentis in iis qui facit eorum claritatem. Investigationes demonstraverunt lectores legere me lius quod ii legunt saepius.

THE AIM?

Typi non habent claritatem insitam; est usus legentis in iis qui facit eorum claritatem. Investigationes demonstraverunt lectores legere me lius quod ii legunt saepius. Claritas est etiam processus dynamicus, qui sequitur mutationem consuetudium lectorum. Mirum est notare quam littera gothica, quam nunc putamus parum claram, anteposuerit litterarum formas humanitatis per seacula quarta decima et quinta decima. Eodem modo typi, qui nunc nobis videntur parum clari, fiant sollemnes in futurum.

Autem vel eum iriure dolor in hendrerit in vulputate velit esse molestie consequat, vel illum dolore eu feugiat nulla facilisis at vero eros et accumsan et iusto odio dignissim qui blandit praesent luptatum zzril delenit augue duis dolore te feugait nulla facilisi. Nam liber tempor cum soluta nobis eleifend option congue nihil imperdiet doming id quod mazim placerat facer possim assum. Typi non habent claritatem insitam; est usus legentis in iis qui facit eorum claritatem. Investigationes demonstraverunt lectores legere me lius quod ii legunt saepius.

KEY ASPECTS?

Lorem ipsum dolor sit amet, consectetuer adipiscing elit, sed diam nonummy nibh euismod tincidunt ut laoreet dolore magna aliquam erat volutpat. Ut wisi enim ad minim veniam, quis nostrud exerci tation ullamcorper suscipit lobortis nisl ut aliquip ex ea commodo consequat.

Duis autem vel eum iriure dolor in hendrerit in vulputate velit esse molestie consequat, vel illum dolore eu feugiat nulla facilisis at vero eros et accumsan et iusto odio dignissim qui blandit praesent luptatum zzril delenit augue duis dolore te feugait nulla facilisi. Nam liber tempor cum soluta nobis eleifend option congue nihil imperdiet doming id quod mazim placerat facer possim assum.

WHAT HAPPENED?

Consectetuer adipiscing elit, sed diam nonummy nibh euismod tincidunt ut laoreet dolore magna aliquam erat volutpat. Ut wisi enim ad minim veniam, quis nostrud exerci tation ullamcorper suscipit lobortis nisl ut aliquip ex ea commodo consequat. Duis autem vel eum iriure dolor in hendrerit in vulputate velit esse molestie consequat, vel illum dolore eu feugiat nulla facilisis at vero eros et accumsan et iusto odio dignissim qui blandit praesent luptatum zzril delenit augue duis dolore te feugait nulla facilisi. Nam liber tempor cum soluta nobis eleifend option congue nihil imperdiet doming id quod mazim placerat facer possim assum.

Duis autem vel eum iriure dolor in hendrerit in vulputate velit esse molestie consequat, vel illum dolore eu feugiat nulla facilisis at vero eros et accumsan et iusto odio dignissim qui blandit praesent luptatum zzril delenit augue duis dolore te feugait nulla facilisi. Nam liber tempor cum soluta nobis eleifend option congue nihil imperdiet doming id quod mazim placerat facer possim assum. Typi non habent claritatem insitam; est usus legentis in iis qui facit eorum claritatem. Investigationes demonstraverunt lectores legere me lius quod ii legunt saepius.

THE BETTER BANKING LAW VIEW:

Claritas est etiam processus dynamicus, qui sequitur mutationem consuetudium lectorum. Mirum est notare quam littera gothica, quam nunc putamus parum claram, anteposuerit litterarum formas humanitatis per seacula quarta decima et quinta decima. Eodem modo typi, qui nunc nobis videntur parum clari, fiant sollemnes in futurum.

Fuis autem vel eum iriure dolor in hendrerit in vulputate velit esse molestie consequat, vel illum dolore eu feugiat nulla facilisis at vero eros et accumsan et iusto odio dignissim qui blandit praesent luptatum zzril delenit augue duis dolore te feugait nulla facilisi. Nam liber tempor cum soluta nobis eleifend option congue nihil imperdiet doming id quod mazim placerat facer possim assum. Typi non habent claritatem insitam; est usus legentis in iis qui facit eorum claritatem. Investigationes demonstraverunt lectores legere me lius quod ii legunt saepius.

SIA plan of 1990

HOW IT CAME TO BE?

Duis autem vel eum iriure dolor in hendrerit in vulputate velit esse molestie consequat, vel illum dolore eu feugiat nulla facilisis at vero eros et accumsan et iusto odio dignissim qui blandit praesent luptatum zzril delenit augue duis dolore te feugait nulla facilisi. Nam liber tempor cum soluta nobis eleifend option congue nihil imperdiet doming id quod mazim placerat facer possim assum. Typi non habent claritatem insitam; est usus legentis in iis qui facit eorum claritatem. Investigationes demonstraverunt lectores legere me lius quod ii legunt saepius.

THE AIM?

Typi non habent claritatem insitam; est usus legentis in iis qui facit eorum claritatem. Investigationes demonstraverunt lectores legere me lius quod ii legunt saepius. Claritas est etiam processus dynamicus, qui sequitur mutationem consuetudium lectorum. Mirum est notare quam littera gothica, quam nunc putamus parum claram, anteposuerit litterarum formas humanitatis per seacula quarta decima et quinta decima. Eodem modo typi, qui nunc nobis videntur parum clari, fiant sollemnes in futurum.

Autem vel eum iriure dolor in hendrerit in vulputate velit esse molestie consequat, vel illum dolore eu feugiat nulla facilisis at vero eros et accumsan et iusto odio dignissim qui blandit praesent luptatum zzril delenit augue duis dolore te feugait nulla facilisi. Nam liber tempor cum soluta nobis eleifend option congue nihil imperdiet doming id quod mazim placerat facer possim assum. Typi non habent claritatem insitam; est usus legentis in iis qui facit eorum claritatem. Investigationes demonstraverunt lectores legere me lius quod ii legunt saepius.

KEY ASPECTS?

Lorem ipsum dolor sit amet, consectetuer adipiscing elit, sed diam nonummy nibh euismod tincidunt ut laoreet dolore magna aliquam erat volutpat. Ut wisi enim ad minim veniam, quis nostrud exerci tation ullamcorper suscipit lobortis nisl ut aliquip ex ea commodo consequat.

Duis autem vel eum iriure dolor in hendrerit in vulputate velit esse molestie consequat, vel illum dolore eu feugiat nulla facilisis at vero eros et accumsan et iusto odio dignissim qui blandit praesent luptatum zzril delenit augue duis dolore te feugait nulla facilisi. Nam liber tempor cum soluta nobis eleifend option congue nihil imperdiet doming id quod mazim placerat facer possim assum.

WHAT HAPPENED?

Consectetuer adipiscing elit, sed diam nonummy nibh euismod tincidunt ut laoreet dolore magna aliquam erat volutpat. Ut wisi enim ad minim veniam, quis nostrud exerci tation ullamcorper suscipit lobortis nisl ut aliquip ex ea commodo consequat. Duis autem vel eum iriure dolor in hendrerit in vulputate velit esse molestie consequat, vel illum dolore eu feugiat nulla facilisis at vero eros et accumsan et iusto odio dignissim qui blandit praesent luptatum zzril delenit augue duis dolore te feugait nulla facilisi. Nam liber tempor cum soluta nobis eleifend option congue nihil imperdiet doming id quod mazim placerat facer possim assum.

Duis autem vel eum iriure dolor in hendrerit in vulputate velit esse molestie consequat, vel illum dolore eu feugiat nulla facilisis at vero eros et accumsan et iusto odio dignissim qui blandit praesent luptatum zzril delenit augue duis dolore te feugait nulla facilisi. Nam liber tempor cum soluta nobis eleifend option congue nihil imperdiet doming id quod mazim placerat facer possim assum. Typi non habent claritatem insitam; est usus legentis in iis qui facit eorum claritatem. Investigationes demonstraverunt lectores legere me lius quod ii legunt saepius.

THE BETTER BANKING LAW VIEW:

Claritas est etiam processus dynamicus, qui sequitur mutationem consuetudium lectorum. Mirum est notare quam littera gothica, quam nunc putamus parum claram, anteposuerit litterarum formas humanitatis per seacula quarta decima et quinta decima. Eodem modo typi, qui nunc nobis videntur parum clari, fiant sollemnes in futurum.

Fuis autem vel eum iriure dolor in hendrerit in vulputate velit esse molestie consequat, vel illum dolore eu feugiat nulla facilisis at vero eros et accumsan et iusto odio dignissim qui blandit praesent luptatum zzril delenit augue duis dolore te feugait nulla facilisi. Nam liber tempor cum soluta nobis eleifend option congue nihil imperdiet doming id quod mazim placerat facer possim assum. Typi non habent claritatem insitam; est usus legentis in iis qui facit eorum claritatem. Investigationes demonstraverunt lectores legere me lius quod ii legunt saepius.

THE BANKING ACT OF 1933
aka
THE GLASS-STEAGALL ACT

How it came to be?

Following the 1929 stock market crash and the Great Depression, there was need to restore confidence in the U.S. banking system and bring an end to bank runs. In addition, the "Pecora" investigations had demonstrated that the investment banking operations of commercial banks had been engaged in highly risky activities that were not in the best interest of their customers or their American public.

Senator Carter Glass (D-VA) sponsored the act, with the support of Congressman Henry Steagall (D-AL).

What did it do?

Though not often described as such, the Banking Act of 1933 (also known as Glass-Steagall) is actually a "two part" act.

PART ONE established the Federal Deposit Insurance Corporation (FDIC), guaranteeing bank deposits up to a certain amount. This began at $2,500 and over time has been raised to $250,000.

PART TWO separated commercial banking from investment banking. Commercial banks were prohibited from engaging in investment banking activities. It also restricted investment banks from funding their operations from bank deposits to engage in speculative and risky (i.e. volatile) securities trading activities. Banks were prohibited from underwriting and trading securities, apart from underwriting government-issued bonds, and general obligation (tax supported) bonds of state and local governments.

Learn more here from the Federal Reserve History.

What happened?

During the years since the Banking Act of 1933 was in effect, the country saw prosperity, stability and growth. Over the decades, bank regulators gradually gnawed away at Glass-Steagall, with a final repeal in by Congress in 1999.

IN THE 60's: Non-bank entities, such as General Motors and Sears began offering consumer credit, which competed with banks for loans. The Office of the Comptroller of the Currency (OCC) issued regulations, allowing banks to offer products similar to mutual funds and to underwrite (buy and sell) municipal bonds backed by project revenue in addition to those backed by the taxing power of the states or local governments. Inflation exceeded the interest rate cap on savings and other deposit accounts. Consumers began to seek other safe products with better returns and bonds, while prime customers began to bypass commercial banks and go directly to capital markets for borrowing or high yield savings. The Federal Reserve permitted the savings & loans associations (S&Ls) to pay higher interest rates on savings accounts than commercial banks and offer a product similar to a checking account, not subject to interest rate caps. S&Ls were not covered under Glass-Steagall. 

IN THE 70's: Deposit account innovations were plentiful, including Merrill Lynch's “cash management account". Depositors could write checks against their funds in money management accounts and get better rates. Merrill could use deposits to trade securities (unregulated), unlike commercial banks. 1978 saw the first Mortgage-backed security (bundled mortgages sold to investors), offered by Bank of America.

IN THE 80's: The theme was commercial banks and investment banks acquiring each other and commercial banks began to trade in derivatives. The FDIC authorized state-chartered, non-Federal Reserve banks to partner with securities firms, even if they had FDIC insurance. The Fed permitted Bank of America to buy Charles Schwab and granted Citigroup, Bankers Trust and JPMorgan to trade mortgage-backed securities, municipal bonds and commercial paper. The OCC allowed Citibank to offer a collective investment trust - unregistered investment vehicles (like hedge funds) for pension and 401k plans. 

IN THE 90's: The Gramm-Leach-Bliley Act put an end to PART TWO of Glass-Steagall in 1999, repealing the separation of commercial banks and investment banks. Commercial banks were now able to participate in the same speculative activities as investment banks.