When both major parties endorsed restoring the Glass-Steagall Act in their campaign platforms last month, they reaffirmed the powerful hold that the Glass-Steagall principle of separating commercial and investment banking has on the public imagination.
Glass-Steagall has become politically popular for good reason. The public understands that reducing the size and (especially) the complexity of our major publicly supported banking institutions is crucial to a healthier financial system. Restoring some version of the Glass-Stegall firewall between commercial and investment banking is a direct and powerful means to that end. There’s also an understanding that the financial system was generally more stable during the 60 years in which Glass-Steagall was in force.
Unfortunately, much of the inside-the-beltway commentary on Glass-Steagall does not add depth and substance to the public debate and is often inappropriately dismissive and shallow. A number of respected experts on the banking system, such as Federal Deposit Insurance Corp. Vice Chairman Thomas Hoenig, are strong supporters of Glass-Steagall. But too many other commenters dismiss Glass-Steagall for reasons that are at best half-truths and at worst censor the robust debate that we need to have about our current system of universal banking.