2016 Postmortem
In reply to the discussion: Hillary Clinton opposes breaking up the megabanks, opposes reinstating Glass-Steagall [View all]Rilgin
(787 posts)The prohibitions of glass steagall relate to the fact that chartered bank accounts are insured by the FDIC and other agencies. This is the problem with the elimination of the glass steagal lwall. Other activities can threaten depository capital held by the bank side.
When they eliminated Glass Steagall, it allowed banks to have two divisions directly and by affiliation and to underwrite security offerings. Inherently, these activities depended on the assets of the bank and the depositary capital it held. If the investment division went down, the bank might be broke and not able to pay deposits. If no connection, you can let investment banks go bankrupt as it does not threaten the banking system as a whole.
I also saw in another post you seem to claim that banks are only able to make collateralized loans and you seem to refer to mortgages. The bank charter system is highly diversified. The big national banks traditionally did not do home mortgages but were commercial lenders. This was when banks were actually highly regulated. Glass Steagall did not exist in a vacuum. Mortgages were made by Savings Banks and credit unions. This distinction has mostly disappeared. However, banks can lend and leverage their capital directly and indirectly in ways other than collateralized loans.
I write this as a banking lawyer in the 80's who saw the changes in regulation first hand. Before the deregulation banking regulation was pretty tight and Glass Steagall was a big part of it. I do not currently work as a banking lawyer and am not as aware of the current strictures so have no comment on your posts over the Volcher Rule or its effectiveness. I do know the old regulation regime worked to keep our banking system rock solid from first being enacted all the way through to the 80s