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Glass-Steagall: Repeal the repeal?

Revived Glass-Steagall-type legislation might well benefit banks more than they like to believe.

The rallying cry for a return to Glass-Steagall is becoming deafening. Richard Fisher, president of the Federal Reserve Bank of Dallas, in an interview with Euromoney, says he is expecting discussions around "Glass-Steagall 2.0" to commence in earnest in October.

In an interview with the Financial Times in September, Citi’s former chief executive, John Reed, also backed a return to Glass-Steagall, arguing that the "culture clash" between trading and commercial banking leads to "behaviour that isn’t necessarily productive for the economy". He pointed out that in his experience the repeal of the legislation in 1999 resulted in no cost benefit to financial institutions.

Banks argue that such a move back to Glass-Steagall would be too complex, but the proposals for a "21st century Glass-Steagall Act", do little to support their rhetoric.

Financial institutions would not receive deposit insurance or access to the Fed discount window or a bailout for anything other than their commercial banking enterprises. Non-traditional banking and intermediation would be regarded as a separate business, but a "break-up" would not be obligatory.

Fisher says the only thing stopping a return to Glass-Steagall is the wall of money banks are prepared to throw at lawyers to block it.

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