In their platforms, both major political parties are calling for a revival of a Depression-era law that kept banks from offering both commercial banking and investment banking services. But North Carolina lawmakers are split on whether to pass a new version of the Glass-Steagall Act.
Donald Trump’s Republican Party wants to reinstate the law to prohibit banks from engaging in high-risk investment activities. Hillary Clinton’s Democratic campaign wants to update the law and break up “too-big-to-fail financial institutions that pose a systemic risk” to the economy. Clinton campaign staff did not respond to questions about her vision for updating the law.
Green Party presidential nominee Jill Stein is also calling for a return of Glass-Steagall, and Libertarian candidate Gary Johnson has said that reinstating it “might be a good thing.”
Congress effectively repealed Glass-Steagall in 1999 when it passed the Gramm-Leach-Bliley Act, allowing banks to marry bread-and-butter commercial banking with Wall Street-style investment banking services. North Carolina is home to big banks that do just that, thanks in part to major deals during the financial crisis. Charlotte-based Bank of America bulked up its investment bank in 2009, when it bought Merrill Lynch, and San Francisco-based Wells Fargo gained major securities operations in Charlotte when it purchased Wachovia in 2008.
Bank experts say a return of the law would mean that companies like Bank of America, JPMorgan Chase, Citigroup, Wells Fargo and others would have to get rid of substantial portions of their businesses, such as securities underwriting or banking operations. That messy divorce could be avoided if the law includes a grandfather clause that allows banks to continue operating in their current state, said Lissa Broome, a professor of banking law at the University of North Carolina at Chapel Hill.
“There are lots of combinations of commercial banks and investment banks now that potentially could be affected in an adverse fashion by some kind of return to the Glass-Steagall law, so it’s surprising and I’m wondering if they really mean it,” she said.
While both parties included Glass-Steagall provisions in their platforms, it hasn’t been a major issue on the campaign trail for Trump or Clinton. And efforts to bring back the law since the financial crisis have not made it through Congress.
Rep. Robert Pittenger, R-Charlotte, said reinstating Glass-Steagall would have “absolutely nothing to do with creating a more sound and secure financial system.” He favors raising the amount of capital banks are expected to maintain instead.
Pittenger said he was surprised that the 2016 Republican platform included language in support of reinstating the law. Pittenger is a former board member of Charlotte’s Park Meridian Bank, which was later acquired by Regions Bank.
Banking industry groups have opposed bringing back Glass-Steagall, arguing that allowing financial institutions to diversify makes them stronger.
“Institutions engaged in multiple businesses are stronger, less risky and more capable by every measure as a result of changes and improvements made since the 2008 crisis,” said John Dearie, acting CEO of the Financial Services Forum, an industry group.
There’s such a misstatement that the financial collapse was caused in the private sector. It was initiated by the government, by creating access to . . . easy credit and, frankly, putting pressure on financial institutions to loan instant credit to people who are not creditworthy. It was force feeding.
Rep. Robert Pittenger, R-N.C.
Talk of bringing back the law doesn’t surprise Rep. Walter Jones, R-Farmville. He thinks banks have grown too big and pose a danger to the state’s economy. Jones is a co-sponsor of the 21st Century Glass-Steagall Act of 2015, which repeals some of the provisions that made it possible for Bank of America and Wells Fargo to acquire other financial institutions. There is a companion bill in the Senate listed under the same name.
“With our economy of North Carolina, as well as nationally, I just think that, to me, I feel that the customer is better served if the bank doesn’t have so many services outside of banking that they are providing the consumer,” he said. “I just – it’s a philosophical belief of mine, truthfully.”
Jones initially voted in favor of the legislation that repealed Glass-Steagall, and he calls it one of the “two worst votes” of his life – the other being his vote to support the invasion of Iraq.
I’ve always made the statement that my two worst votes that I regret the most: the first one, quite frankly, was the Iraq War under George Bush, and the second regret was Glass-Steagall, when I voted with the Republican leadership to repeal Glass-Steagall.
Rep. Walter Jones, R-N.C.
Other lawmakers are trying to remain neutral on the topic while Trump and Clinton prepare to face off in debates.
Rep. David Price, D-Chapel Hill, is willing to support any legislation that protects consumers and prohibits “risky, speculative trading by large banks while taking into account the complexities of the modern global economy,” said Lawrence Kluttz, communications director for the congressman. Kluttz said Price was a staunch advocate of the 2010 Dodd-Frank financial overhaul legislation, which placed stringent regulations on the financial industry to prevent large institutions from collapsing.
“Congressman Price believes we need to strengthen and build on Dodd-Frank to better protect against the next financial crisis and curb irresponsible behavior, and he looks forward to engaging in a conversation with the next president of the United States about how best to do so,” he said.
Rep. Alma Adams, D-Charlotte, did not respond to multiple inquires about her position on reinstating the Glass-Steagall Act.