Sen. Elizabeth Warren starts campaign to force banks to be boring
WASHINGTON -- Sen. Elizabeth Warren has launched a campaign to make banks boring again as she pushes legislation to enact stricter regulations forcing deposit-taking financial institutions out of the investment business.
The Massachusetts Democrat wants to reinstate the Depression-era Glass-Steagall law, which separated what she called boring checking and savings accounts that are backed by the Federal Deposit Insurance Corp. from risky investment banking.
And after joining three other senators Thursday in introducing a bill to do that, Warren went to the Twitterverse to rally support.
She urged her Twitter followers to retweet the message, “Banks should be boring.” She emailed her political backers asking them to support her 21st Century Glass-Steagall Act, which she introduced along with Sens. John McCain (R-Ariz.), Maria Cantwell (D-Wash.) and Angus King (I-Maine).
And on Friday morning she appeared on CNBC and Bloomberg Television to make her case.
Warren mixed it up with the hosts of CNBC’s “Squawk Box,” who questioned whether the legislation would end the problem of banks considered “too big to fail.”
“At the end of the day, there is no single magic bullet to stop ‘too big to fail,’” Warren said.
“But the central premise behind a 21st century Glass-Steagall is to say, ‘If you want to get out there and take risks, go and do it,” she continued. “But what you can’t do is you can’t get access to FDIC-insured deposits when you do.’”
Liberal groups cheered the new legislation.
But Warren and other supporters of reinstating the Glass-Steagall prohibitions, which were repealed in 1999, face a difficult fight in Congress as the largest banks have pushed back strongly against efforts to force them to downsize.
Industry officials and their supporters have said Glass-Steagall would not have prevented the financial crisis.
They noted that the financial institutions that failed or helped trigger the crisis -- including Bear Stearns & Co., Lehman Bros., American International Group, Countrywide Financial Corp. and IndyMac Bank -- were not engaged in crossover deposit-taking and investment-banking activity.
“We believe that the Congress modernized the regulatory framework through Dodd-Frank and that addressed the problems we found in the crisis,” said Scott Talbott, senior vice president for public policy at the Financial Services Roundtable, which represents the largest companies.
Among those changes are new rules adopted by regulators recently forcing banks to hold more and higher-quality capital as a cushion against potential losses
“Returning to Glass-Steagall would take the industry backward,” Talbott said. “It’s better to take the industry into the present, to modernize, rather than go back into the 1930s.”
Warren agreed that Glass-Steagall would not have prevented the financial crisis, but she said reinstating it could help force the largest banks to downsize, reducing the risk of future bailouts.
“What Glass-Steagall can do is wind some more of the risk out of the system. It can help bring down the size of the largest banking institutions,” she said on CNBC.
Asked about the long odds of passing the legislation, Warren said she heard the same thing about the Consumer Financial Protection Bureau. Warren had the original idea for the agency and helped get it included in the 2010 Dodd-Frank financial reform law despite strong opposition in the financial industry.
“We got that agency because we got out and fought for it,” she said.
Your guide to our new economic reality.
Get our free business newsletter for insights and tips for getting by.
You may occasionally receive promotional content from the Los Angeles Times.