Sen. Manchin Raises Glass-Steagall in Senate Banking Hearing
February 16, 2013 • 9:34AM

In a Senate Banking Committee hearing Thursday on Wall Street reform, the Glass-Steagall Act was brought up by Sen. Joe Manchin (D-W.Va.), while he was questioning witnesses from the Federal Reserve and financial regulatory agencies.

"Glass-Steagall was put in place in 1933 to prevent exactly what happened to us," Manchin said, referring to the 2007-2008 collapse. "It was in place, I think for approximately 66 years until it was repealed. Up until the '70s, it worked pretty well. We started seeing some changes in chipping away with new rules that took some powers away from Glass-Steagall. And then we finally repealed in 1999." Manchin noted that the "Volcker Rule" "doesn't do what the Glass-Steagall does," and then asked the regulators, "why wouldn't we have those protections?" One of the regulars responded, in Jack Lew style, that the mistake wasn't deregulation, but that the regulatory scheme wasn't modernized, by "substituting a new, more robust set of structures and measures, that could take account of the intertwining of conventional lending with capital markets."

Glass-Steagall was also cited, in a negative manner, by Federal Reserve Board member Daniel Tarullo, in response to Sen. Sherrod Brown (D-Ohio) asking about his proposals for breaking up the big banks. Tarullo answered by citing three types of such proposals: those such as the Vickers and Likannen schemes, those for breaking up the big banks such as that being worked on by Senators Brown and Vitter, and what he called "a functional split," that there are certain functions that cannot be done within a bank-holding company. "Obviously, Glass-Steagall was exactly that kind of approach. It separated investment banking from commercial banking," Tarullo said, then trying to debunk Glass-Steagall with the tired old argument, that it wouldn't have prevented the 2008 collapse.

Other Senators, such as Dean Heller (R-Nev.) and Elizabeth Warren (D-Mass.), who have in the past endorsed restoring Glass-Steagall, avoided mentioning it here, while bringing up related but secondary issues: Heller asking about the effects of bank consolidation on driving out community banks, and Warren attacking the failure of banking regulators to put any of the big banks on trial, and instead working out plea-bargains.