Glass-Steagall did not cause the Crisis

Phil Gramm, the former U.S. senator who helped write the 1999 law that enabled the creation of financial giants such as Citigroup Inc. (C) and Bank of America Corp., said his legislation didn’t make the system any riskier.

The Gramm-Leach-Bliley Act repealed the 1933 prohibition against federally insured depository institutions combining with securities firms and insurers. While his law allows deposit- taking banks to affiliate with securities firms through holding companies, depositors and taxpayers are protected because affiliates can’t take capital out of the banks, Gramm said in a telephone interview yesterday.

“I don’t see any evidence that allowing them to affiliate through holding companies had anything to do with the financial crisis nor has anybody ever presented any evidence to suggest that it did,” said Gramm, 70. Companies that failed such as Lehman Brothers Holdings Inc. “tended to be narrowly focused.”

Sanford “Sandy” Weill, who created Citigroup and pushed for the Gramm-Leach-Bliley Act, said yesterday on CNBC that he would now support dismantling financial holding companies.

“What we should probably do is go and split up investment banking from banking,” Weill, 79, said in the interview. “Have banks do something that’s not going to risk the taxpayer dollars, that’s not going to be too big to fail.”

John Reed, who helped found Citigroup with Weill, and former Merrill Lynch & Co. CEO David Komansky have said they regretted fighting to overturn the Depression-era Glass-Steagall Act. Richard Parsons, speaking two days after ending his 16-year tenure on the board of Citigroup and one of its predecessors, said the repeal contributed to the financial crisis.

Bloomberg

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell