Congress Plans to Breakup Big Banks

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Congress may pass an upcoming bill that would give the federal government the power to break up “too big to fail” banks as a last resort rather than bailing them out.

Today marks a decade since President Bill Clinton signed the repeal of the Depression-era Glass-Steagall Act that split investment-banking from lending and deposit-taking. The repeal allowed the creation of Citigroup Inc., the financial colossus monster now propped up by $45 billion in taxpayer rescue funds. As you might think financial firms are scrambling to prevent Congress from re- imposing the act.

Repeal of the Glass-Steagall set up the deregulation of the banking industry lead to the near financial meltdown of 2008. The bailouts from the US government, make that taxpayers, to save already rich bankers and their Wall Street friends were not well received by the public. In unruly townhall meetings across the nation this year Congressmen got an ear full from the public about their views of using public money to bailout financial institutions like AIG and Citigroup. The scenes from the townhall meetings were not pretty. Congress got the message that pitchforks might be next and that they would be first in line as they are applied.

Now Representative Paul Kanjorskiff is getting ready to bring forward a bill that outlines how to dismantle large financial firms rather than bail them out. “We’re playing with live ammo,” said Sam Geduldig, a lobbyist at Clark Lytle & Geduldig who represents financial services firms. “The banking community is rightfully concerned.”

“You don’t ever want to be in the situation again where something is too big to fail,” Senate Banking Committee Chairman Christopher Dodd told Bloomberg Television yesterday. The Connecticut Democrat, who unveiled a regulatory overhaul proposal this week, said the government should have the power to break apart large institutions “as a very last resort.”

Representative Paul Kanjorskiff’s bill may be proposed in Congress as early as next week. You can bet your bottom dollar the banking industries lobbyists will be working overtime in an effort to kill the bill. With passage of the bill the “too big to fail” mantra may well change to “too big to survive”.