Friday, January 22, 2010

Is It the Return of Glass-Steagall?

President Barack Obama’s financial regulation proposals don’t fully revive bank legislation from the 1930s, said Austan Goolsbee, a White House economic adviser, perhaps trying to talk the markets back up.

“Its intention is not to pull the full Glass-Steagall,” Goolsbee, a member of the White House Council of Economic Advisers, said today in an interview on Bloomberg Radio, referring to the 1933 law, repealed in 1999, that separated commercial and investment banking. The purpose of Obama’s plan is to limit “companies that avail themselves of the federal safety net and turn around and use that capital to make investments for themselves,” he said.

Since commercial banks rely on the FDIC to guarantee their deposits, Goolsbee may be making a distinction here without much of a difference. Banks will have to either close or divest themselves of their prop trading operations. That sounds an awful lot like a return of a key part of Glass-Steagal, though it does seem to leave room for commercial banks to play a role as IB advisers, and perhaps (hee, hee) discount brokers.

1 comment:

  1. In his book on Monetary and Banking history in the US Rothbard places this act in the context of New Deal era conflicts between Morgan interests and (generally pro-FDR) Rockefeller / Harriman interests.