AP News
(2009-12-15 19:45:25)
WASHINGTON (Reuters) - U.S. Senate Banking Committee Chairman Christopher Dodd said on Thursday it would be "pretty difficult" to reinstate 1930s-era Glass-Steagall limits on banking as proposed in two bills in Congress.
His remarks suggested an uphill climb ahead for legislation, filed in both the Senate and the House of Representatives on Wednesday, that would strictly separate commercial banking, investment banking and insurance.
The bills reflect a desire by some lawmakers to take a more structural approach to overhauling financial regulation than the Obama administration or Democratic leaders in Congress have proposed in the year since 2008's banking crisis.
"I want to see these institutions go back to their core businesses as well," Dodd, a moderate Democrat, told reporters after a meeting of his panel where members voted to approve the renomination of Federal Reserve Chairman Ben Bernanke.
But Dodd added: "I think you'd have a hard time repealing Gramm-Leach-Bliley on this point."
Some of the world's largest financial firms, such as Goldman Sachs or Citigroup, could be broken up under the two bills introduced on Wednesday, one with the backing of former Republican presidential nominee John McCain.
Both would restore 1933's Glass-Steagall laws barring large banks from affiliating with securities firms and engaging in the insurance business. Those limits were largely repealed by 1999's Gramm-Leach-Bliley Act, a deregulatory high-water mark.
Senator McCain and Democratic Senator Maria Cantwell introduced the Senate bill, while the House version was offered by six lawmakers, including Representative Maurice Hinchey.
The bills came as Congress debates a sweeping overhaul of financial regulation more than a year after a banking and capital markets crisis rocked economies worldwide.
Dodd said: "I think the idea of encouraging or incentivizing institutions to get back to their principal functions, particularly banks being banks, is in everyone's interest ... My view is it's probably pretty difficult to just talk about a flat repeal of that."
Analysts were skeptical about the Cantwell-McCain bill and the accompanying Hinchey measure in the House.
"Despite the attention that the Cantwell-McCain bill ... has received, I think the chances are low that the legal separation between commercial and investment banking will be reinstated," said Brian Gardner, policy analyst at investment firm Keefe Bruyette & Woods.
"While I think a number of senators support Cantwell-McCain, I think they are in the minority," he said.
Charles Gabriel, an analyst at Capital Alpha Partners, said he doubted Cantwell-McCain would gain much traction.
If it did, he said, "market tantrums" could ensue and "it would provide a must-win challenge for Treasury Secretary Geithner and the Obama administration."
(Editing by James Dalgleish)
