Looking back at the slippery slope of US banks

[futurebeachbum]

Found this article on the NYT Archives from 1992 "Administration Presents Its Plan For Broad Overhaul of Banking"

The Bush Administration today formally presented its plan for the most sweeping overhaul of the nation's banking system since the Great Depression.

The proposal, the broad outlines of which had been widely known here for weeks, offers the nation's commercial banking system a competitive landscape unrestrained by many of the barriers and regulations that were installed by the Government after the national banking crisis in the 1930's.

The most important elements of the plan would allow commercial and investment banks to merge and would push down the barriers to interstate banking. It would also permit industrial companies to own banks.
...
The plan, which had been supported by large banks but worried smaller institutions, rewards financially strong banks by giving them the authority to enter into new businesses, like investment banking.The amount of capital, or long-term investment, that a bank has is the criterion for determining financial strength, and those institutions that are deemed poorly capitalized would be put under tighter control of the Government.
...
The main targets of the proposal are laws that were intended to curb speculative excesses that led to the collapse of the banking industry in the 1930's. These include the McFadden Act of 1927, which sharply limited interstate banking; the Glass-Steagall Act of 1933, which restricted the mergers of investment banks and commercial banks, and the Bank Holding Act of 1956, which prevented industrial companies from owning banks.
...
John D. Dingell, a Michigan Democrat who is the chairman of the House Energy and Commerce Committee, said he would oppose the measure.

"Wall Street is a dry hole today, and even in the best of times it is an extremely risky business," Mr. Dingell said. "Allowing weak banks into the securities field or into insurance, which has solvency problems, will simply compound the problems of both."

Does't Dingell sound like a stick-in-the-mud?

What could possibly go wrong?

 

[30ashopper]

Interesting. Some of those proposals sound reasonable and some rather short sighted. I don't remember anything like this passing though, Glass-Steagall wasn't repealed until 1999. I wonder what became of it.

 

[scooterbug44]

Those who do not remember history are doomed to repeat it - there was a REASON why they make those rules post-Great Depression!

 

[futurebeachbum]

Interesting. Some of those proposals sound reasonable and some rather short sighted. I don't remember anything like this passing though, Glass-Steagall wasn't repealed until 1999. I wonder what became of it.

It looks like the first part of the legislation finally passed in 1994. From the wiki page for the Bank Holding Act:

The interstate restrictions of the Bank Holding Company act were repealed by the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994

This was a big step and to me, as big a piece of the problem with the banks as risky investments.

Banks need to be actively invested and involved in the success of the communities that they serve. As they become bigger (through the big interstate mergers that happened) and service a much wider geography it becomes impossible for them to retain that level of local involvement.

Traditionally, bankers helped lead the charge to bring in new business opportunities and stimulate the local economies. The board of the bank was made up of local businesspeople who understood both the importance and the risks of potential local investments.

None of that is true now. Banks are far too large and detached from the communities that they serve to have their leadership care about local projects across their territory. Legislators here in Georgia understood that so well that during the Glass-Steagall period they banned branch banking even between counties. There were absolutely no banks in Ga that were too big to fail.

When you couple this detachment from the community with the ability of a single institution to assume risks of gigantic proportions you get a recipe for disaster.

We’ve now seen that disaster manifest itself and it only took a couple of decades to become the huge mess that it is.

 

[scooterbug44]

Which is also why my hometown bank (now with 3 locations) survived unscathed - they only did mortgages and loans for projects in their county and refused to get involved in subprime lending.

They were laughed at for being old fashioned - but they got the last laugh.

 

[beachFool]

My wife was VP at a small savings and loan that stuck to their knitting and shareholders did quite well.

Fast forward a few years they were purchased by a bank with an aggressive lending philosophy which was seized by the FDIC.

Deregulation of banks-while possibly well-intentioned-had serious drawbacks and exacerbated the financial crisis.

 

[futurebeachbum]

I'd be all for bringing back some of the elements (and intentions) of Glass-Steagall, The Bank Holding Act and The McFadden Act.

We don't need to be in a position where the nation's prosperity and security can be held hostage by super-banks or Wall Street. Banks need to become locally focussed operations again.

What are the odds that anyone on either side of the aisle will go against the big $ of Wall St or the big banks and do this? When I think of this possiblity I am reminded of the phrase "snowballs in Hell."

 

[30ashopper]

I'd be all for bringing back some of the elements (and intentions) of Glass-Steagall, The Bank Holding Act and The McFadden Act.

We don't need to be in a position where the nation's prosperity and security can be held hostage by super-banks or Wall Street. Banks need to become locally focussed operations again.

What are the odds that anyone on either side of the aisle will go against the big $ of Wall St or the big banks and do this? When I think of this possiblity I am reminded of the phrase "snowballs in Hell."

Neither side understands the issue fully. Republicans being champions of deregulation won't touch it and democrats have already shown a lack of will through Dodd-Frank.

 

[Andy A]

I am not financially astute enough to understand the banking issue and its ramifications. That is why many years ago, I quit dealing with banks for personal use and went to credit unions.

 

[mputnal]

I also agree this is a very complicated problem that involves politics and the economic power of big business. I think political idealogy, campaign funding and financial power are all responsible. Does anyone vote for politicians with a history of solid fiscal policy or just for the idealogy of policy? Why do politicians win elections because of their partisan idealogies or skills of speech rather than a hard work ethic in solving main street problems. Why do Americans have so much faith that our economy is solid and can not fail (ever)? Why do Americans have so much faith in their "party" to solve ALL problems (always)? Why are Americans willing to divide our country with politics, idealogies and religion? Why can't Americans debate political issues without emotion? Why can't we all live and let live while constructively debating "how" to live better. Why do humans need to "judge" other humans for all sorts of things? Just coming back from vacation out West and have developed a certain sadness of how our own "sophisticated" American culture completely destroyed our native American culture. Someone please explain to me which culture was better for this planet we live on?