On May 18, 2017, a very important hearing was held in the Dirksen Senate Office Building on Capitol Hill by the Senate Committee on Banking, Housing and Urban Affairs. It was important because it most likely marked the official start of the debate on a 21st Century version of the Glass-Steagall Act.
It is widely known that both Democrats and Republicans favor some form of 21st Century banking restrictions; President Trump and Senator Elizabeth Warren (D-Mass.) included. To be clear, it is not an "if" situation, but rather, what type of banking restrictions will ultimately be enacted.
The original Glass-Steagall Act was a Depression-era "wall" built between investment activities and commercial banking. It was repealed in November 1999 as part of the Financial Services Modernization Act of 1999 (a.k.a. the Gramm-Leach Bliley Act) by a bi-partisan alliance that included the then Clinton White House and a GOP-majority Congress. GLBA voided the existing Glass-Steagall restrictions – an action that many have argued was a major culprit in the collapse of the mortgage markets in 2008.
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Any new form of Glass-Steagall, no matter how it is tailored for the current economic situation, would be vehemently opposed by the banking industry. As to be expected, the American Bankers Association stated, "There is broad agreement, including among all our bank regulatory agencies, that Glass-Steagall would not have prevented the crisis or the housing market collapse." In closing the ABA added, "America's economy depends on banks of all sizes to meet the needs of a large and diverse group of clients, customers and communities." Not a surprising statement given the source.
Where Credit Unions Fit Into the Debate
This debate is important to credit unions because it will decide whether or not banks will retain the ability to conduct both commercial banking and risky investment banking activities all under one roof.
Unfortunately, immediately following the 2008 financial crisis, our industry missed its opportunity to effectively establish that "we didn't start the fire" and that an unrestricted banking industry was largely to blame. And as a result, credit unions were shouldered with the same multitude of laws and regulations that were intended for the real architects of the modern day calamity.
Meanwhile, banks of all sizes have opposed all attempts by credit unions to update the way we serve consumers, both in Congress and through an ongoing series of lawsuits against the NCUA regarding regulatory improvements. We also face their annual "tax-the-credit-unions" pleas, which reoccur like pollen every year. Meanwhile, banks expect our cooperation on regulatory and legislative matters such as repealing the Durbin Amendment and the burden of financial regulation, caused mostly by them.
Weigh the public opinion difference of credit union taxation versus bringing back a version of Glass-Steagall to prevent another 2008 crisis. That media narrative is hopelessly unbalanced against our "friends" from the ABA.
As the Glass-Steagall debate unfolds in the coming months, the call to action to credit unions is clear. We ask that credit unions, credit union leagues and our two national trade associations join together with one voice on this important debate of a 21st Century version of Glass-Steagall. To ignore it could leave our industry, our members and our entire country open to a repeat of the crisis of 2008.
We get a "do over" here to control the media narrative that finally sets the record straight on "who started the fire" and what we need to do to fix it once and for all.
Kathy Geary is President/CEO of Democracy FCU. She can be reached at [email protected].
Bernard McLaughlin is President/CEO of Point Breeze CU. He can be reached at [email protected].
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