Ted Kaufman and Thomas Hoenig Press for Glass-Steagall at AEI
May 3, 2013 • 11:26AM

Speaking at an event at the American Enterprise Institute (AEI) on Wednesday, former Senator Ted Kaufman (D-Del.) and current FDIC Vice Chairman Thomas Hoenig both called for a return to Glass-Steagall. They were speaking at a noontime forum titled "Too Big to Tolerate — How to Right-size America's Giant Banks." A full report on the event will appear in the next 24 hours, but the highlights of the two speakers' opening remarks are:

* Sen. Kaufman told the audience that if he were in charge of ending the too-big-to-fail policy enshrined in Dodd-Frank, he would "follow Sandy Weill" and reinstate Glass-Steagall. "Go back to what worked in the past" by fully separating commercial banking from investment banking. Kaufman, however, cautioned that he was deeply skeptical that this Congress would show the courage to reinstate Glass-Steagall. He did cite a clear bipartisan pattern in both the U.S. and Europe of growing support for solving the problem of TBTF. He cited Brown-Vitter, the Vickers Commission proposals for ring-fencing, and similar proposals coming from Germany, France, and the European Commission, as evidence that there is a growing mandate for much further change in the banking system.

* Thomas Hoenig, while not mentioning Glass-Steagall by name in his opening remarks, was nonetheless explicit about what he is calling for: complete separation. Hoenig argued that "structure matters" and that the banks must be broken up on the basis of functions, not size. He demanded complete separation of commercial banking from brokerage and other activities, and emphasized that what he is calling for goes way beyond ring-fencing. He said the banks' holding companies must be broken up completely. Unless these steps are taken soon, then a new bailout is inevitable, he warned. Right now, because Dodd-Frank made no real structural changes, there is a presumption that in a crisis, pressure will be overwhelming for there to be another bailout. Hoenig emphasized that banks must be in a position fail without creating a crisis for the whole system.