We could be looking at the end of banking as we've known it — at least since 1999. There's been a growing chorus for the repeal of the repeal of the Glass-Steagall Act, a Depression-era law that forced a split between investment and consumer banking. It was overturned in 1999.
Bloomberg News wrote on Monday that President Obama and former Fed Chairman Paul Volcker want to see more regulation for banks. Bloomberg reports that analysts suggest "it will be more costly for some of the banks to remain in the areas they were let into" if the old Glass-Steagall barrier comes back.
Federal Reserve Chairman Ben Bernanke is joining in the chorus.
Bloomberg news reports today that Bernanke, who is addressing the Council of Foreign Relations in Washington today, said he wants to limit the risks the "too big to fail" banks can take.
That list includes outfits like JPMorganChase and Citigroup, banks that combine trading desks with regular savings branches. That leaves them with investment operations (the risk takers) on one side, commercial banks (their more sensible sibling) on the other. The same entity gives mortgages to consumers, then combines those into the now infamous mortgage-backed securities. The one side ends up betting on the other.
The Glass-Steagall Act was originally passed in the 1930s when the economy was in tatters and the financial markets were on their knees — sound familiar? Back then, savings banks couldn't act as investment banks, too. In 1999, a time when investment banks actually made profits, the law was repealed: boring deposit-taking banks could now do investment bank activities like derivatives and other cool stuff — making lots more profit. Now those profits are gone, the calls are growing for a repeal of the repeal.