Big banks could get chopped down

While JPMorgan and Wells Fargo post strong earnings, Elizabeth Warren and John McCain are preparing a bill to break up such giants.

By Jonathan Berr Jul 12, 2013 12:14PM
U.S. Sen. Elizabeth Warren's vow to make banking "boring" is probably causing Wall Street's masters of the universe, whose earnings are rising as the economy rebounds, to quake in their Gucci loafers.

The Massachusetts Democrat and former Harvard law professor has joined forces with Sen. John McCain, R-Ariz., to introduce a bill that would essentially bring back the Glass-Steagall Act, a Depression-era law that required banks to separate their risky businesses, such as underwriting deals, from less risky ones, such as taking deposits. It was repealed in 1999, and many people have argued that the demise of Glass-Steagall is one of the causes of the financial crisis.
As Bloomberg News noted, Warren and McCain's view is also shared by "radicals" such as Sandy Weill, who turned Citigroup (C) into a behemoth through an acquisition spree, and Richard Parsons, a former Time Warner (TWX) CEO who also served on Citigroup's board. Citigroup was slow in integrating the companies that Weill acquired and has spent years lately disposing of assets to simplify its business. Federal Deposit Insurance Corp. vice chairman Thomas Hoenig also is keen on the idea, the news service says.

Bank sign © John Foxx, Stockbyte, Getty ImagesWarren has argued that the four largest banks are 30% larger now than they were five years ago and that they continue to "engage in dangerous high-risk practices." Her disdain for the banking industry is hardly a secret. While speaking at a 2010 forum sponsored by the Financial Services Roundtable, a Wall Street lobbying group, she likened the industry to "snakes" and denounced their lending practices as "garbage."

Now Warren has another challenge: surging Wall Street profits. JPMorgan (JPM), the largest bank, and Wells Fargo (WFC) on Friday both reported better-than-expected quarterly results. The industry doesn't want to damage its ability to print money, but it's also keen on protecting its image.

JPMorgan's cantankerous CEO Jamie Dimon has argued that no bank should be "too big to fail" and that there needs to be a way for lenders to go bust without causing a second Great Depression -- or a third, depending on how you view the latest financial crisis. Dimon, though, is no fool and understands the prevailing political winds. It's no accident that he called Warren up to congratulate her on election.

Wall Street has little choice but to work with Warren to establish tougher regulations that it can tolerate. Whether her efforts will be successful in hyperpartisan Washington, even with an ally like McCain, is tough to say.

Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.

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40Comments
Jul 12, 2013 1:08PM
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YES, the (slow) repeal of Glass-Steagall was most certainly a big factor in the 2008 crisis, and even more certainly the reason for the taxpayer risk used in TARP--which was scary and a bad precedent.

 

Interesting how the media is already arguing the banker's case. Shows how much these big banks work the media (and the congress) to keep their perks.

Jul 12, 2013 1:40PM
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It's about time. Rather than let a good Bill go to a bad House after the Senate passes it, categorize it as a National Security matter and get it directly to the People. No bank should be nation and there is no such thing as global. It's an excuse, not a business venture. If the largest bank was bound to in-state activity and interstate transactions were fully segregated with no banking associations allowed (alumni and nepotism collusion), we would have no more compromising positions or too big tyrannical scenarios. A bank has a purpose, ruling us through manipulation isn't one of them. Millions of actually competent and well-qualified lending personnel were destroyed from 1999 through 2008. Divest and ban those in banks now from restoring corruption, Elizabeth. The real thing can still build you a quality base that is integral in our recovery and trains the next generation to bide by the Law not sneak around it.
Jul 12, 2013 2:46PM
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The bankers aren't the only scurrilous bastards who deserve a good chopping.
Jul 12, 2013 2:40PM
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FINALLY MCCAIN DOING SOMETHING RIGHT
Jul 12, 2013 1:56PM
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Ditto Old_ and Eric

 

Glass-Steagall was to prevent depressions - and a result of learning from previous mistakes - repealing it was an act of "unlearning" a lessen from history. Increasing the # of banks increases competition. A large nation dominated by a few megabanks is not good for consumers.

 

We also now have many tech tools to easily facilitate payments between banks & even individuals, plus ATM networks, cash back at retailers (no charge!), etc. So we are not moving "backward" with smaller banks. Smaller hometown banks will be part of the trend of going "back to the future" - buying real produce, not "Franken Fruits/Veggies", natural healing, better resource usage (reuse, repurpose, make do, do without), etc.

 

The 99% have no need for the specialized products/services the 1% need - so why should we share in the cost of creating & offering them? Or mitigating their risks with our limited hard-earned dollars?

 

I do need to disclose that my specialty for two decades has been marketing independent small community banks, regional banks & credit unions. I am currently unemployed. More banks, more management groups needed - means more employment opportunities for me - I have then skills they need and am ready to go!

Jul 12, 2013 3:01PM
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YES YES YES YES YES YES!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! The best news i have heard in yrs!!!!
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Every person, entity, or company should never be allowed to be too big to fail. Including the U.S. Gov.

Hey Oblahblah, Make GE pay taxes, and make GM build plants in the U.S.

Jul 12, 2013 4:49PM
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The talk of repealing Glass/Steagall began in the 60's, but Republicans got the ball rolling during the Reagan administration, and finally succeeded when Clinton signed off. Wall Street lobbyists influence (bribe) congress, craft most of the laws enacted, and are well heeled henchmen working for the plutocrats. This has led to our economic dilemma, the demise of the middle class, and ultimately an unsustainable economy. To see where we are heading, just look to Mexico. A handful of rich, a multitude of poor.
Jul 12, 2013 2:55PM
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Glass-Steagall helped protect us from unmitigated greed for 70 years, and history has shown that unmitigated greed always leads to a bubble.  And all bubbles burst.  This is essentially what happened to the real estate market in 2008. Congress has attempted to regulate the industry (Dodd-Frank, Volker Rule), but all this has done is make it more difficult for small businesses to borrow money.  What we really need is the return of Glass-Steagall, because it will force these TBTF banks to spin off their investment activities, which is what got them into trouble in the first place.

 

I'm glad to see a bi-partisan effort to pass this legislation, but the powerful Wall Street lobby will be using a full court press to stop it.  With so many of our representatives on the take, my expectations are pretty low.

 

 

Jul 12, 2013 4:54PM
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Jamie Dimon, I feel he is one of the three Biggest Crooks in the World. He's the CEO and Chairman of one of those Too Big To Fail Banks. Jamie was one of the First to appear on TV stating that the return of Glass Steagall would be a bad thing. The Biggest Crooks always get their way, this time will be no different. Congress is bought and paid for. Jamie should be in Jail along with those he paid off. The hard reality is that he and others keeps robbing America and the World in Plain Sight. Funny what you can do if no entity will touch you and no Regulations apply to you. It's not hard to make money when you have access to Zero Percent Welfare Loans from the FEDS. You then loan it out at Loan Shark Rates to the public at large. That's a hell of a Scam.
Jul 12, 2013 2:15PM
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Until you get lawmakers out of the industry (regulations are one thing, encouraging stupidbehavior through tax breaks and government participation in markets is another) it will never be fixed. The Federal government shared responsibility for the collapse by pushing social reforms onto financial institutions.
Jul 12, 2013 4:41PM
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Classic is right.  As usual, our politicians are doing things bass-ackwards.  The big banks were already breaking up in 2008/2009.  We should have let bankruptcy proceedings play out then - they would have been forced to break up into pieces and sell them to the highest bidder.  Even after the US Gov used TARP to acquire a financial stake in TBTF, they could have broken them up and sold them off, piece by piece, but they didn't.  Now they want to create and implement another massive piece of legislation to do just that?  This is clearly just another giant power grab.

Let the free market work and these problems won't exist in the first place.
Jul 12, 2013 7:19PM
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Finally! MCCAIN! Most of mccaine's  idea are half baked and shortsighted. But with this one maybe he can redeem himself. But how they are gonna win the house? Those bunch are not gonna give up before America becomes a theology fueled third rate third world country.
Jul 12, 2013 5:07PM
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Glass-Steagall should never ave been repealed.  I'm not terribly optimistic that this initative will pass due to the polarized atmosphere in Washington.
Jul 14, 2013 2:48AM
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We live in a electronic virtual world where profits are being made without ever having to take physical deliver of the products that are being manipulated. Trades per millisecond with the Big Boys playing Russian Roulette with the Global Economy. It's becoming crystal clear why their hasn't been a physical audit of total American Gold since the 1950s. It simply isn't there. It's also becoming crystal clear why some countries are buying physical Gold in Record numbers while also trying to establish any currency other than the dollar. The Myth of the all mighty Dollar is fading fast, thanks to corrupt, Too Big to Fail Banks, scamming everyone, again. The Repeal of Glass Steagall will eventually result in what they wanted all along, One World Government and One World Currency. And We the People didn't have the Stones to do anything about it. We just let it happen.
Jul 12, 2013 6:18PM
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how about gutting the other ticking time bomb? how about gutting big brother?  starting with obamacare.
Jul 14, 2013 1:41AM
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Bringing back the Glass-Steagall Act or an updated form of it would, in my opinion, help in the recovery. I'd also like to see some type of regulations passed regarding usury. Interest charges on credit have no relation to interest received on savings.
Jul 16, 2013 1:12PM
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Wrench42...Couldn't have said it better!!!!!
Jul 12, 2013 3:40PM
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Classic lady;This is probably the first time you`ve ever been right.You`re learning from

me.Congrads.

Jul 12, 2013 6:26PM
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CHRIS VAN HOLLEN            ELIZABETH WARREN         2016.........  For True Reform
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