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Sen. McCain's Bill Would Restore Glass-Stegall, Separate Banking and Insurance

A bill by Sen. John McCain (R-Ariz.) would reinstate the 1930s-era Glass-Stegall law that barred large banks from affiliating with securities firms and engaging in...
January 13, 2010

A bill by Sen. John McCain (R-Ariz.) would reinstate the 1930s-era Glass-Stegall law that barred large banks from affiliating with securities firms and engaging in the insurance business. Those limits were repealed in 1999 with the repeal of the Glass-Stegall Act. That same year, the Gramm-Leach-Bliley Act (GLBA) was passed, which specifically allowed banks to enter the insurance business. Sen. McCain's bill is entitled the Banking Integrity Act of 2009 (S. 2886).

"It is time to put a stop to the taxpayer financed excesses of Wall Street," McCain said in a statement with the bill's co-sponsor, Senator Maria Cantwell (D-Wash.).

Analysts say passage of the McCain-Cantwell bill would force firms at the center of last year's financial crisis -- such as Goldman Sachs, Morgan Stanley, Citigroup, JPMorgan Chase and Wells Fargo -- to spin off investment and insurance operations. In fact, S. 2886 contains a specific prohibition regarding insurance activities:

SEC. 3. PROHIBITING DEPOSITORY INSTITUTIONS FROM
ENGAGING IN INSURANCE-RELATED ACTIVITIES.

"Beginning 1 year after the date of enactment of this Act, and notwithstanding any other provision of law, in no case may a depository institution engage in the business of insurance or any insurance-related activity."

"Since the repeal of the Glass Stegall Act in 1999, this country has seen a new culture emerge in the financial industry: one of dangerous greed and excessive risk-taking," said McCain in a press release on his website. "Commercial banks traditionally used people's deposits for the constructive purpose of main street loans. They did not engage in high risk ventures. Investment banks, however, managed rich people's money - those who can afford to take bigger risks in order to get a bigger return, and who bore their own losses. When these two worlds collided, the investment bank culture prevailed, cutting off the credit lifeblood of Main Street firms, demanding greater returns that were achievable only through high leverage and huge risk taking, and leaving taxpayers with the fallout."

"This country would be better served if we limit the activities of these financial institutions," McCain said. "Banks should accept consumer deposits and invest conservatively, while investment banks engage in underwriting and sales of securities."

What It Means to Agents:  This is potentially a significant emerging issue. With Congress   considering financial regulatory reforms in the wake of the big market meltdown and the resulting taxpayer bailouts, former Republican presidential nominee McCain is advancing what might become a popular idea, especially in an election year: Are you for Wall Street or Main Street?

Statement by Sen. John McCain on the Banking Integrity Act (12/17/09)

Text of S. 2886 (PDF)

"Big is Bad" Catches On in Congress  (Politico 1/4/10)

An Odd Post-Crash Couple (Newsweek 12/15/09)