Reviving Glass-Steagall Means Escalating 'War' on Wall Street

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"Reinstating Glass-Steagall misses the mark—a point we intend to share with Chairman Dodd and other senators on the committee," said Rob Nichols, president of the Financial Services Forum, a Washington-based trade group that represents the chief executive officers of the largest financial firms.

Dodd said he doesn't favor reviving Glass-Steagall as a way of dealing with "too-big-to-fail" institutions and added "there are other things we can do to break them up."

Leach, Gramm

Also lining up on the side of the banks are two sponsors of the 1999 bill that dismantled Glass-Steagall. Jim Leach, a former Republican congressman from Iowa and now chairman of the National Endowment for the Humanities, said the biggest problem was overleveraging by securities firms, not the mingling of businesses.

"Virtually all of the financial difficulty banks are in today relates to activities they could do before" President Bill Clinton signed his bill in 1999, Leach said.

Phil Gramm, who as a Republican senator from Texas was another co-sponsor, said that, rather than weakening banks, the law cushioned the impact of the subprime mortgage crisis by making financial institutions more broad-based and competitive.

"A lot of this is about trying to find somebody to blame," said Gramm, now a vice chairman of investment banking at UBS Securities LLC.

'Political Dynamite'

Hinchey, the congressman who introduced the House bill to reinstate Glass-Steagall, said in an interview that a comeback is "very questionable."

"There's a lot of pressure coming from the big banks to prevent this kind of thing from happening," Hinchey said.

Those banks may have lost some of their political influence as their earnings have recovered, said William Isaac, a former chairman of the Federal Deposit Insurance Corp. "The TARP legislation and the way it was administered was political dynamite for the banks," said Isaac, now chairman of the global financial services unit of LECG Corp., an economic and financial consulting firm in Emeryville, California. "The public feels that this was all about protecting Wall Street and did nothing for Main Street, and it's largely true."

To contact the reporters on this story: Alison Vekshin in Washington at avekshin@bloomberg.net; James Sterngold in New York at jsterngold2@bloomberg.net.

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