Fourth Glass-Steagall bill introduced in Italian Parliament by 48 Senators
July 3, 2013 • 10:22AM

A draft bill for a Glass-Steagall like banking separation Act has been introduced in the Italian Senate by Sen. Giuseppe Vacciano (M5S), and signed by virtually the entire M5S faction (48 senators out of 50).

The website of the press spokesman for the M5S Senate faction announced the bill on Tuesday with a video statement by Vacciano, entitled: "Finally M5S: go ahead to the new Glass-Steagall Act for separating commercial banks from investment banks." The video is introduced with a short presentation, explaining that the draft bill "wants to break an entanglement which had already been broken after the 1929 Great Depression, through the introduction in 1933 thanks to U.S. President Roosevelt, of the Glass-Steagall Act. The entanglement was re-created, under pressures from large investment banks, in 1999 by the Clinton administration, leading to a new, large crisis worse than the one of the last century".

In the video, Vacciano announces that that same day (yesterday), he is going to file the draft bill. A Radiocor/Il Sole 24 Ore wire datelined July 2 has partially covered the statement. "The bill – Vacciano explains in a release – prescribes the separation between commercial and investment banks, an issue being discussed for a long time politically but which nobody seems willing to do really something about. Now it is up to the Senate chairman, Pietro Grasso, to assign it to the Finance Committee, which I am a member of, to schedule it for discussion. I hope to find the largest possible support, since this is not a M5S problem, it is not a problem of any political party, but it is a problem of the entire nation. This situation – Vacciano concludes – has led in Italy to a scandal we know very well: it is called Monte dei Paschi di Siena".

The text of the draft bill has a very long introduction with many parts identical to the text of the resolution voted by the Tuscany Regional Council, which was obviously the template. Vacciano, who is a regional official of the Bank of Italy, has added parts of his own, including a review of all major "banking reform" proposals in Europe and in the USA: Liikanen, the German and French bills, Vicker's Ringfencing and of course Frank-Dodd.

The historical background is provided: "Separation of banking activities, established in the United States by the famous Glass-Steagall Act introduced under the Presidency of Franklin Delano Roosevelt in 1933, which ended financial excesses at the origin of the Great Depression, has contained financial excesses and moral hazard by bankers, whose greed and thirst for money has caused the most serious, severe and generalized crisis since the 1929 Great Depression, when the economy was not yet globalized. The abrogation of the Glass-Steagall standard, effected by the Clinton administration under pressure by investment banks, has been the main cause for financial crises and disasters which have produced victims among families and enterprises, including in Italy. Since the bursting of the derivative bubble – derivatives are hyper-speculative instruments, completely disconnected from productive investments which move resources away from the real economy to a real global casino – the threat of a bank failure has led governments and central banks to a series of bailouts paid by the people.

"(…) Among the first measures to face the 1929 financial crisis, was the introduction of a clear separation between traditional banking and investment banking. The two activities could not be practiced by the same agency. The aim was to avoid that a failure of the speculative part (investment banking) provokes a default of the traditional "commercial" part, where deposits and credits to the real economy are located (mortgage loans, credits for productive firms). "

Monte dei Paschi is taken as an example to make the case for banking separation today. "First the government makes a financial X-Ray picture of MPS to find out speculative and commercial activities, then it cuts the bank in two parts. Eventually, the commercial part gets government money in order to guarantee deposits and cover loans. The other part is bankrupted in a controlled way (large part of the debt shall be 'erased').

"Italy can start a new phase by going back to the origins, in order to avoid bankers' moral hazard and re-establish a real credit function, aimed at collecting savings and invest it prudently, as a major driver for the economy. Separation between ordinary (commercial) banks and (investment) banks operations on speculative markets not only prevents that families, firms and common depositors must foot the bill for greedy bankers used to generate global speculative bubbles, but it would have the function to pull the country out of the culture of easy earnings through gambling on the markets, a real collective blindness which has captured legislators throughout the world into the myth of wealth without sacrifices, with the ruthless use of derivatives and creation of money from nothing. The real economy and sweated savings cannot be gobbled up by speculative finance; therefore it is more than urgent to rebuild that Chinese wall that separates investment bank and bankers who have made gains with depositors and savers' money, from commercial banks lending to the real economy".

The text than explains that "with this measure, the government is mandated to implement rules aimed at establishing separation between Commercial banks and Investment banks, according to the standards and the model of the Glass-Steagall Act, taking into account the need to emphasize a model of traditional, non speculative banking, recognizing its specificity and social and economic role".

The operational part consists of 6 Articles, defining the two different sort of banks and specifying all things, as well as economic relations, that commercial banks cannot do or have.

Vacciano's bill is the fourth draft bill for a Glass-Steagall- like banking separation currently in the Italian Parliament. There is another one in the Senate introduced by former Economy minister Giulio Tremonti, and two in the Chamber of Deputies, introduced by Dvide Caparini (Lega Nord) and Marco Di Lello (PSI-PD).

There is a good chance that Senate chairman Pietro Grasso, a Democratic Party member who was elected chairman thanks to M5S votes, will assign Vacciano's draft bill to the Finance Committee.