DOVER, Del. – Under heavy pressure from the banking industry, Delaware state lawmakers ended their 2013 session Sunday without voting on a financial-reform measure.
Lobbyists from J.P. Morgan Chase and Bank of America weighed in against Senate Resolution No. 8, which would have added Delaware to the lengthening list of states supporting national reinstatement of the Glass-Steagall Act.
The measure failed to get a floor vote, but it remains active in committee until June 30, 2014. The resolution had bipartisan backing – including leading Senate Democrats – but stalled in the session’s waning days.
The Glass-Steagall campaign got a late boost from New Castle County Executive Thomas Gordon, who praised the resolution sponsored by state Sens. Bruce Ennis and Robert Venables Sr., urging the U.S. Congress to restore the wall of separation between commercial and investment banking.
The Federal Banking Act of 1933, known as Glass-Steagall, walled off commercial bank deposits from speculative investment brokerage houses.
Glass-Steagall’s repeal in 1999 preceded the megabank mergers of the early 2000s, which gave birth to the concept of “too big to fail” — and the multibillion-dollar government bailouts that ensued.
“This was one of the major unravelings,” Gordon noted.
New Castle County Chief Administrative Officer David Grimaldi added that Glass-Steagall had prevented major financial meltdowns from occurring since the Great Depression.
“Financial panics and economic depressions were fairly common during the century which preceded the Great Depression, occurring at a rate of one every 20 or so years,” said Grimaldi, who formerly worked for Morgan Stanley, J.P. Morgan Chase’s investment bank on Wall Street.
“The Glass-Steagall Act contributed to an era of relative financial stability which sadly came to an end with its repeal.”
Grimaldi said it was important for Congress to take precautions since he believed there was an elevated probability of another correction or crash.
“Both in duration and magnitude, the current equity bull market has become long in the tooth.” Grimaldi said. “It is critical that Congress take proactive measures to mitigate the risk of another financial collapse. Reinstating the Glass-Steagall Act would be an important step.”
So far, lawmakers in four states have passed bills calling for Glass-Steagall’s return. Similar measures are pending in Rhode Island, Pennsylvania, North Carolina, New Jersey and New York.
But Delaware is off the list for now. State Sen. Bryan Townsend was among the Banking Committee members who downplayed Glass-Steagall.
“I support as much fluidity in financial markets as possible subject to appropriate risk-balancing and regulatory oversight,” the Newark Democrat told the Delaware Way blog, edited by Nancy Willing. “Glass-Steagall was designed for a financial industry that we have long since outgrown.”
That said, Townsend acknowledged, “We must find the right policies to encourage wealth-building financial activities that do not result in the same kind of taxpayer-bailout scenarios that were one of the hallmarks of the Great Recession. My hope is that regulators in D.C. are given the authority and resources they need to keep us on a path of wealth-building that benefits society broadly.”
Glass-Steagall bills have been introduced in both the U.S. House and Senate.
Rep. Marcy Kaptur, an Ohio Democrat who co-introduced H.R. 129 with Rep. Walter Jones, R-N.C., said, “The protections in Glass-Steagall are meant for individuals, families and communities.
“The biggest banks are more interested in speculation to drive their short-term profits than following prudent banking practices that work for everybody.
“We know. We’re still climbing out of the crater that Wall Street created.”
H.R. 129 currently has 66 co-sponsors.
Lyndon LaRouche, whose political-action organization is a prime proponent of financial reform, said, “This country has no chance of survival without an immediate return to Glass-Steagall.”
“The U.S. is already hopelessly bankrupt. As long as we continue with the hyperinflationary bailout polices of (Barack) Obama and (Fed Chairman Ben) Bernanke, you are as good as dead,” LaRouche said.
“The choice is between killing the gambling debts or killing American citizens, as the citizens of Cyprus, Greece, Spain, Portugal and Ireland are already being killed by willful and genocidal austerity.”
While the showdown in Delaware indicates what’s at stake for big Wall Street investment banks, Glass-Steagall garnered more support this week in Washington.
Thomas Hoenig, vice chair of the Federal Deposit Insurance Corp., and former FDIC Chair Sheila Bair told the House Financial Services Committee they both endorsed re-enactment of the banking law.
Hoenig called it “absolutely necessary.”
Public Citizen, the Ralph Nader-founded group, released a 13-page pamphlet, “Safety Glass — Why It’s Time to Restore the 1930s Law Separating Banking and Gambling,” in calling for the return of Glass-Steagall.