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Senate Co-Sponsorship Memoranda
Senate of Pennsylvania
Session of 2015 - 2016
Regular Session
MEMORANDUM
| Posted: | June 6, 2016 09:31 AM |
|---|---|
| From: | Senator Mike Folmer |
| To: | All Senate members |
| Subject: | Resolution: Glass-Steagall Act Resolution |
| Shortly, I plan to reintroduce my Senate Resolution 188, which calls upon Congress to reinstate the provisions of the Glass-Steagall Act in place of the Dodd-Frank Act. Previous cosponsors were Senators Eichelberger and Solobay. After the stock market crash of 1929 and the Great Depression of the 1930s, several laws were passed to protect the American economy. Glass-Steagall was a key safeguard for over 60 years as it restricted both relatively low-risk traditional commercial banking and higher-risk investment banking. During that time, the United States had the highest rate of economic growth in its history and the lowest rate of financial crashes. In 1999, Glass-Steagall was replaced by the Gramm-Leach-Bilely Act, which removed a number of investment restrictions on banks. Combined with government housing policies, many bank loans became subprime or otherwise low quality. By 2008, roughly 58% of all US mortgages fell into this category and when the housing bubble burst, mortgage defaults soared to unprecedented levels, causing a worldwide financial crisis. Congress responded in 2010 with passage of the 2,300-page Dodd-Frank Act, which imposed vast new regulations on banks. Unfortunately, Dodd-Frank has not stemmed the fiscal woes as many banks have become more fragile, funding themselves with short-term, often overnight, money that makes them vulnerable to runs. Meanwhile, cities, states, and nations across the world face financial crises. Puerto Rico is the latest, defaulting on debt payments and confronting bankruptcy. As Congress struggles with these issues, Treasury Secretary Jacob Lew has warned another “taxpayer-funded bailout may become the only legislative course available”. Title II of Dodd-Frank calls for the "orderly resolution" of “too big to fail” measures – including giving super priority status to the most speculative bank holdings (i.e., “derivatives”) above all other obligations. This allows the FDIC to use taxpayer money to initiate a bail-out into a "bridge" bank. Additionally, while deposits are protected up to $250,000, these protections are limited to the extent the FDIC has money to cover claims. However, just two of the “too big to fail” banks have book values of more than $1 Trillion, which exceeds the world GDP. Dodd Frank would allow depositor investments to be turned into bank equity – a “bail in”: allowing depositors’ moneys above the FDIC guaranteed $250,000 level to be used as “uninsured" loans. This “bail in” mechanism was used at the end of 2015 in Italy by four banks and more than 130,000 investors (average citizens and small businesses) lost most if not all of their investments. Protests were held and at least one investor committed suicide. I believe my Resolution protects the American middle-class by urging Congress to again separate commercial and investment banking by repealing Dodd-Frank and getting back to the Glass-Steagall Act of 1933. I hope you will consider cosponsoring this important measure. |
Introduced as SR411