Tierney favors split in banking types

PEABODY – U.S. Rep. John F. Tierney wants a return to the financial system adopted during the Great Depression that kept Wall Street investment banking separate from Main Street commercial banking.Tierney is one of five House Democrats slated to push for such a law in Congress this week but President Barack Obama is against it.The other congressmen co-sponsoring the amendment are Jay Inslee of Washington, Maurice Hinchey of New York, John Conyers of Michigan and Peter DeFazio of Oregon. All want the Glass-Steagall Act of 1933 brought back on the law books because it halted commercial banks from underwriting stocks and bonds.In 1999, Congress repealed that law, paving the way for the nation’s big banks to grow exponentially. At the time, the U.S. mortgage and credit card markets encompassed many financial institutions. But over the past decade, four big banks emerged – JPMorgan Chase, Citigroup, Wells Fargo and Bank of America. Together, these institutions gained control of 66 percent of credit cards, 40 percent of all bank deposits and more than 50 percent of all mortgages. These were the institutions described by the Obama administration earlier this year as “too big to fail” as the nation plummeted into economic uncertainty.Tierney and the other four Democrats voted against repealing the law in 1999. Now they have proposed a return to the Depression-era legislation that would give banks a year to choose whether they want to be a commercial or an investment bank.Much of the problem with allowing banks to function as both can be traced to the Federal Deposit Insurance Corp. (FDIC), which is basically a repository of taxpayer monies used to bail out banks that get into trouble through risky investments and lose their depositors’ assets.The FDIC was founded by the Glass-Steagall Act of 1933 as part of President Franklin D. Roosevelt’s New Deal plan for economic recovery. Nearly 5,000 banks had failed and required Roosevelt to make emergency action. The banking act and the FDIC became permanent additions to the law in 1945.According to the five Democrats seeking a return to the 1933 law, if the FDIC is there to bail out the investment banks, then the banks have little to fear from risky investments – hence the reason to separate the types of banking.