BOSTON -- JP Morgan's $2 billion loss demonstrates that serious risks still exist in our banking system said U.S. Senate candidate and consumer advocate Elizabeth Warren, as she called for more serious Wall Street reforms, including a modern Glass-Steagall Act to protect consumers from Wall Street gambles.
"JP Morgan's recent losses show that there are still serious risks in our banking system, and if we don't act, then the next trade that goes bad could threaten our whole economy," Warren said. "A new Glass-Steagall would separate high-risk investment banks from more traditional banking. It would allow Wall Street to take risks, but not by dipping into the life savings and retirement accounts of regular people."
In 1933, as a response to the crash of 1929, Congress passed the Banking Act, more commonly known as the Glass-Steagall Act, after its two authors, Senator Carter Glass of West Virginia and Congressman Henry Steagall of Alabama. Glass-Steagall is best known for separating commercial banks from investment banks. The idea was to divide the risky activities of investment banks from the core depository functions that consumers rely upon every day.
Under Glass-Steagall, commercial banks, which take deposits from consumers, were prohibited from underwriting most types of securities; investment banks were allowed to underwrite securities, but could not receive deposits. The Glass-Steagall Act's regulations came under heavy attack starting in the 1980s and the Gramm-Leach-Bliley Act repealed its core provisions in 1999.
"Wall Street's risky bets nearly brought the economy to its knees in 2008, but instead of taking responsibility, Wall Street lobbied to water down the Dodd-Frank financial reforms of 2010 and fought to weaken the reforms Congress passed," said Warren.
"By making banks smaller, a new Glass-Steagall could also help put an end to banks that are 'too big to fail' -- further avoiding costly taxpayer bailouts," Warren said.
Warren is widely credited with the idea for the Consumer Financial Protection Bureau, and she served as Assistant to the President and Special Advisor to the Secretary of the Treasury in 2010 and 2011, with the authority to set up the consumer agency. Warren also served as Chair of the bipartisan Congressional Oversight Panel. For her clear and fearless oversight efforts on behalf of the American people, Time Magazine named her one of the "New Sheriffs of Wall Street," and the Boston Globe named her Bostonian of the Year in 2009.