This post is follow up of an article from an “American Banker”, written by Frank Sorrentino; the CEO of ConnectOne Bank, and Board Memeber of the American Banker’s Association. My follow up to his prolonged discourse of biased rhetoric and postulation follows.
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It’s a rare occasion when both major political parties converge on a particular platform or issue — and rarer still when said platform involves the resurrection of an outdated law born of the Depression era.
Yet today, in 2016, we find ourselves in such a scenario. Current discussions around the potential reinstitution of the Glass-Steagall Act — enacted in 1933 to prohibit commercial banks from engaging in the investment business as a response to the Great Depression — are headline-grabbing and emotional. However, Glass-Steagall ultimately has no merit in our current financial environment. It is a relic of an ancient world that no longer exists, where the U.S. was the supreme world power in financial services.
Today, this is far from the case. As of 2015, of the world’s 25 largest banks, only four are in the U.S. Quite simply, the “massive” financial institutions we have in the U.S. are not so massive on the global scale.
To reinstate a law that further breaks down these large institutions would put the U.S. at a huge competitive disadvantage, forcing some of the largest American companies to seek out non-U.S. financial institutions for their banking services. We can’t disregard the fact that the most sophisticated large borrowers want and expect to have all their financial services in one place, and they will not hesitate to look elsewhere if circumstances require them to.
While it may conjure up nostalgic sentiment or conciliate those who fear another financial crisis, the bottom line is that Glass-Steagall would do nothing to provide for our banking system today. Furthermore, had it been in place in 2007, it would not have prevented the recession or the collapse of financial institutions like AIG, Lehman Brothers or Bear Stearns — none of which were banks, and therefore, not included under Glass-Steagall’s legislation.
I agree that we should not allow financial institutions to become too big to fail, or have banks operating in every business. The Dodd-Frank Act, another example of post-crisis legislation, has done a lot to deal with these issues, and has strengthened the financial industry in certain respects. Yet there are also aspects of it that have done little more than add layers of cost and regulatory complexity to banks of all sizes, contributing to lackluster growth in GDP. At this time, our focus should not be on resurrecting another bill from the annals of history, but on analyzing the costs and benefits of our current regulations and figuring out what kind of modern financial system we want to have relative to other global institutions.
Since the 2008 financial crisis, we’ve taken numerous measures to make the financial industry significantly safer. According to the Financial Services Forum, the largest U.S. banks have become smaller and simpler; capital has doubled and liquidity has tripled among the largest firms. Many larger banks, due to capital requirements, are divesting their subsidiaries and scaling down.
Banks today are safer than ever — from a risk, capital, expense ratio, liquidity perspective, etc. — yet still, they remain the piñata when it comes to our economic woes. Calls to reinstate Glass-Steagall and further restrict the industry only reinforce this narrative.
At the end of the day, banks are here to support the U.S. economy, not to serve as its punching bag. People often want to divorce banking from the economic progress that’s going on, when in reality, they are very much related. Banks provide enormous tailwinds to the economy when they are able to do what they do best.
In our current post-recession environment, the focus should be on spurring aggressive economic growth and enabling U.S. competitiveness on a global scale. For this, Glass-Steagall is far from the answer. So what is?
Moving forward, we need to stop the rhetoric and take a pragmatic look at where we are in the economic landscape, where we want to be and the realistic measures that will help us get there. It’s time to de-politicize the conversation and think practically about how we can move forward as a major economic player. This includes allowing banks of all sizes, relative to our economy, to work efficiently to provide the services today’s financial environment requires.
This is not 2008, and it’s certainly not 1933. Let’s not allow emotional appeals to a bygone era drive our financial policy. It’s time to put the growth of our economy first.
This is one of the worst attempts from the CEO of an American bank, and Board member of the American Bankers Association to defend against the necessity of re-instituting the Glass-Steagall Act. I would think that he would work a bit harder to have more than hyperbole and postulation to make his point. I understand that financial institutions do not have the levity to use facts in order to prove any point on this subject due to the fact that there are none that will suffice. Using the point that the reinstitution of Glass-Steagall would not benefit American financial institutions because they are not the biggest banks on the block is not a valid argument. His attempts to assume that “bigger is better” in the financial industry shows just how inane his arguments are.
The argument for the reinstitution is solely based on the facts that the financial institutions use fraud and criminal activities for their business model. Period. The reinstitution of Glass-Steagall did in its inception, and would do so again, create stop measures and regulations as to the actions of the financial sector.
The argument that other banks outside of the United States would benefit more due to these regulations is a non-sequitor to say the least. That argument is simply stating that if American financial institutions are going to have to act in accordance to the rules of law, it will hurt their bottom line. This is an insane means of rationale and show the depths of depravity that our society has allowed our corrupt politicians and financial system.
Abosulte power corrupts absolutely. The human condition has shown that when there is no oversight or regulations greed will corrupt absolutely. Taking away regulation from the foundations of the capitalistic paradigm leave zero room for fairness when profit is the sole desired base in a system that holds no conscience. There is no reason for any amount of ethics to be used in the financial corporate systems when the sole reason for existence is profit at any cost. Corporations hold no ethical reason toward fairness to their clients as their sole means of existence is profit for the shareholder. Without proper oversight and regulation to their actions, as well as, accountability and repercussions to their illegal activities there is no difference between Wall Street today and the wild west lawlessness of the 1800’s.
When Mr. Sorrentino stated, “it may conjure up nostalgic sentiment or conciliate those who fear another financial crisis, the bottom line is that Glass-Steagall would do nothing to provide for our banking system today. Furthermore, had it been in place in 2007, it would not have prevented the recession or the collapse of financial institutions like AIG, Lehman Brothers or Bear Stearns — none of which were banks, and therefore, not included under Glass-Steagall’s legislation”, is simply bullshit. The fact that these institutions held such destructive power is because of the deregulation from the Clinton Administration of Glass-Steagall. It was due to Glass-Steagall that these institutions never had the power to participate in the financial sector to the extent they were able to in the first place. So, the fact that these corporation were not banks means nothing. What Glass-Steagall did was remove the availability for these types of instituions to act in the ways that they did in concert with Wall Street and Main Street financial institutions to begin with. This article is simply rhetoric and PR used to benefit the financial industry with no merit of logic whatsoever.
The one thing I am not a big fan of is the fact that the first amendment allows greedy biased CEO’s and other idiots to spew untruths and rhetoric to the masses as if they have held intelligent, rational thoughts behind their bullshit ideas.
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