"Once the election is decided and Congress gets back to work, fixing the banking system and reinstating Glass- Steagall should be the highest priority." That’s the final punchline of the latest salvo in American Banker’s ongoing debate on the restoration of Glass-Steagall protections for the American people. Its author is the founder and CEO of New York City metropolitan area’s Signature Bank, Scott Shay, who comes out swinging full-square behind Glass-Steagall, nicely capturing “The Absurdity of Too Big to Fail Banking.”
Shay takes apart the three basic arguments of the bank lobbyists claiming “that the rise of TBTF banks and the 1999 repeal of Glass-Steagall were actually good for the country.”
As for their first argument (“if banking size in the U.S. is limited, American companies will replace their U.S. banks with larger European, Japanese or Chinese banks”), Shay laughs that “it is a testament to the TBTF lobbyists’ prowess that they are taken seriously in urging our policymakers that we emulate European banks.... Does anyone really need to be reminded of the nationalization of the certain British banks, the entire Irish Banking system, the German state banks and the Spanish provincial banks, to name only a few recent era headlines?”
Then there is the argument that the repeal did not cause the crisis and would not have stopped it. Shay answers: “The Glass-Steagall repeal was not the sole cause of the financial crisis but certainly a contributor;” long before its “technical” repeal,” its provisions were overturned, with “the permission regulators gave to the banks for the ‘cultural consolidation’ of commercial and investment banking.” It was (and is) Citibank and Bank of America’s investment banking exposure which needed bailing out, before the mortgage crisis broke.
As for the third, the great value the big banks create for the economy: “small and medium-sized banks are more effective at making loans to the small and medium-sized companies, which are the primary job creators in the U.S.... [W]hat is good for the big banks is not necessarily good for the economy and the growth of jobs.”
“If policymakers can get the structure of the banking system right, there will be less of a need for the volumes of devilishly complex regulations, which are being created almost weekly... Once the election is decided and Congress gets back to work, fixing the banking system and reinstating Glass Steagall should be the highest priority.”
American Banker touts itself as “the leading information resource serving the banking and financial services community,” whose first daily print edition was published in 1835.