House Banking Committee Approves Bill to Repeal Glass-Steagall Act

Strategic Insights -

The House Banking Committee has approved a bill that would repeal the Depression-era law that bars mergers of banks and securities firms. The committee's approval sends the measure to the House Commerce Committee for review, following which it will be voted on as soon as late next month. The proposed bill would require banks and securities firms to operate as separate subsidiaries of a single holding company, regulated by the Federal Reserve.

The bill would allow mergers of big banking companies, such as Citicorp, with big securities firms like Salomon Brothers or Goldman, Sachs, to form new financial conglomerates rivaling those of German and Japanese giants. However, the process was not without controversy, as right-wing Republicans and the Clinton Administration alike had advocated for an amendment to allow insurance companies to merge with banks.

Key Takeaways:

  • The House Banking Committee approved a bill to repeal the Glass-Steagall Act, allowing mergers of banks and securities firms.
  • The proposed law would require banks and securities firms to operate as separate subsidiaries of a single holding company, regulated by the Federal Reserve.
  • The bill is expected to be voted on by the full House in late next month.
  • The Senate Banking Committee was waiting for the House's decision before holding hearings.
  • The approval of the bill without an amendment allowing insurance companies to merge with banks makes it less likely that Congress will allow such mergers.
  • Representative Richard H. Baker withdrew his amendment to add insurance to the bill due to lack of support.
  • House Banking Committee approval of the bill makes it likely that Congress will allow the merger of banks and securities firms, but prevents the merger of banks and insurance companies.
  • Representative Thomas J. Bliley Jr. may add a provision to the bill that would permit mergers of banks and insurance companies.

Statistics:

  • 42 proposed amendments were reviewed by the House Banking Committee.
  • 16 Republicans and 13 Democrats voted in favor of the bill, with 8 Democrats opposing it.
  • The final vote to approve the bill was 29 to 8.
  • Recent academic research has suggested that imprudent loans, rather than bad bets on stocks, caused the widespread bank failures of the Depression.

Sources:

  • The New York Times, February 11 (no year specified)
  • Congressional testimony and reports
  • Administration statements and documents
  • Independent Insurance Agents of America statement