Insurance News

Bills would restore ban on big bank-insurer firms

Posted on: February 1, 2010

WASHINGTON (Reuters) – Financial giants such as Goldman Sachs Group could be broken up under two bills introduced in Congress Wednesday, one with the backing of former Republican presidential nominee John McCain.

Both would reinstate the 1930s-era Glass-Steagall laws that barred large banks from affiliating with securities firms and engaging in the insurance business. Those limits were largely repealed in 1999, a high-water mark for deregulation.

“It is time to put a stop to the taxpayer financed excesses of Wall Street…This country would be better served if we limit the activities of these financial institutions,” Sen. McCain, R-Ariz., said in a statement with Democratic Senator Maria Cantwell of Washington.

Passage of the Cantwell-McCain bill would force firms at the center of last year’s financial crisis,?such as Goldman, Morgan Stanley, Citigroup, JPMorgan Chase and Wells Fargo,?to spin off investment and insurance operations, said Demos, a progressive think tank in New York.

A similar measure was offered Wednesday by six House Democrats.

The bills come as Congress debates a sweeping overhaul of financial regulation more than a year after a severe banking and capital markets crisis rocked economies worldwide.

“Restoring Glass-Steagall may have populist appeal, but it is hard to see how one finds 60 votes for it” to win passage in the Senate, said financial services policy analyst Jaret Seiberg, at investment firm Concept Capital.

“This will be painted as a jobs killer, especially for New York. Plus, conservatives in both parties will balk at having the government forcibly break up private companies,” he said.

The House approved a regulatory reform bill last Friday that would empower a new systemic risk regulator to order the break-up of risky financial firms in extreme circumstances.

The 1933 Glass-Steagall laws were adopted at the same time the Federal Deposit Insurance Corp. was set up. Both reforms came in the Great Depression, when thousands of banks collapsed, wiping out the savings of millions of Americans.

Glass-Steagall was largely repealed in 1999 under the Gramm-Leach-Bliley Act during the Clinton administration amid lobbying pressure from bankers, including those keen to merge the financial firms that later came to comprise Citigroup.

Citigroup, JPMorgan Chase and Morgan Stanley declined to comment. No immediate comment was available from Goldman Sachs and Wells Fargo.

Copyright 2009 Reuters Limited.

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