Bring Back Glass-Steagall

Script and Sources

How can we prevent the next financial meltdown? Make banking boring again. 

Banks should not be casinos. They should not be gambling with your deposits to pump up their profits, and then be bailed out with your tax dollars when they get into trouble. 

I’m old enough to remember when we had a law to prevent this. It was called the Glass-Steagall Act. It’s time to bring it back. 

Glass-Steagall was a banking reform law passed in 1933 during the Great Depression that separated the normal banking needs of Main Street from the gambling of Wall Street. The law made banks choose: they could be commercial banks, taking in deposits and making loans, or they could be investment banks, gambling on the stock market. But they couldn’t do both. 

Before the law's passage, banks could make lots of money using their depositor’s funds to make bets on stocks or bonds or anything else that seemed likely to rise in value. 

Banks were investing more and more as stock market returns grew higher and higher. Everybody wanted in on the action, but the game couldn’t go on for long. The roaring ‘20s eventually ended with a stock market crash and the Great Depression of the 1930s. 

Millions of Americans lost their life savings as thousands of U.S. banks shut down.

In 1933, Senator Carter Glass and Representative Henry Steagall proposed a law to prevent this from ever happening again — the Banking Act of 1933 — better known as Glass-Steagall.

And it worked for some 60 years. Separating commercial from investment banking rebuilt trust in the system and helped the U.S. prevent future bank failures. Banking became BORING. 

But the big banks wanted their casino back, and by the 1990s, Wall Street's army of lobbyists pushed Congress to whittle back Glass-Steagall. The final blow came in 1999, when the Clinton administration joined Republicans and many Democrats in Congress to repeal what remained of the law.

As in the 1920s, banking once again became anything but boring. And the results were highly lucrative for banks. Their profits, which had been relatively steady for the years during the Glass-Stegall era, began to skyrocket following the law’s repeal. 

Not surprisingly, deregulation of banking helped lead to excessive gambling once again, and a replay of the Great Crash. In 2008, Wall Street almost melted down. 

This time, the U.S. government bailed out the biggest banks and financial institutions, which became “too big to fail.” But millions of Americans lost their jobs, their savings, and their homes. 

After the 2008 financial crisis, Congress passed a package of reforms in the Dodd-Frank Act — but they weren’t nearly as strict as Glass-Steagall. And any rules implemented to stop banks from making risky investments have since been significantly watered down. 

So to this day, without a clear separation between investment and commercial banks, we’re left playing Whac-a-Mole. Regulate here, the banks speculate with your money over there. The government is forced to bail out banks so your savings aren’t vaporized overnight. 

The reality is this: your bank’s goal of maximizing profits is fundamentally at odds with the goal of protecting your deposits.

Allowing banks to gamble only privatizes the gains, and then, when a bank gets into trouble and is bailed out, socializes the losses.

It is time — past time — to stop banks from gambling with other people’s money. Separate Wall Street from Main Street. 

Make banking boring again. Bring back Glass-Steagall.