House considers reviving law that limits banks
Glass-Steagall was repealed to allow massive firms
WASHINGTON - The US House is considering a measure that would reinstitute the Glass-Steagall Act, which barred bank holding companies from owning other financial companies, majority leader Steny Hoyer said.
A renewal of the 1933 law “is certainly under discussion’’ by House members, Hoyer said. The law was repealed in 1999 to allow for the formation of Citigroup Inc. by the $46 billion merger of Citicorp and Travelers Group Inc.
“As someone who voted to repeal Glass-Steagall, maybe that was a mistake,’’ said Hoyer, a Maryland Democrat.
Hoyer made the comments when asked whether Congress and President Obama’s administration could do more to persuade banks to make more business loans and get credit flowing into the economy. Obama met yesterday with the chief executives of US banks, urging them to lend more money.
The Glass-Steagall law barred banks that took deposits from underwriting securities. The 1999 law that repealed it enabled the creation of “financial holding companies,’’ which combine banks with insurers or investment banks.
The repeal has generated debate about whether it helped spawn reckless lending practices and financial speculation that led to the meltdown of credit markets last year and the $700 billion US bailout of troubled banks, including Citigroup.
Legislation passed by the House last week to overhaul regulation of Wall Street did not include a reinstatement of Glass-Steagall. It did include an amendment that would give regulators the power to take apart large firms if their size poses a risk to the financial system. The legislation is pending before the Senate.
The repeal of Glass-Steagall made it possible for Goldman Sachs Group Inc. and Morgan Stanley, the two biggest US securities firms, to convert into bank holding companies. If the law had not been repealed, Bank of America Corp. would not have been allowed to acquire Merrill Lynch & Co.
