Congress Weighs Restoring Wall Between Banking, Insurance

Financial giants such as Goldman Sachs Group could be broken up under two bills introduced in the U.S. Congress Wednesday, one with the backing of former Republican presidential nominee John McCain.
Both would reinstate the 1930s-era Glass-Steagall laws that barred large banks from affiliating with securities firms and engaging in the insurance business. Those limits were largely repealed in 1999, a high-water mark for deregulation.
"It is time to put a stop to the taxpayer financed excesses of Wall Street ... This country would be better served if we limit the activities of these financial institutions,'' McCain said in a statement with Democratic Senator Maria Cantwell.
Passage of the Cantwell-McCain bill would force firms at the center of last year's financial crisis -- such as Goldman, Morgan Stanley, Citigroup, JPMorgan Chase and Wells Fargo -- to spin off investment and insurance operations, said Demos, a progressive think tank in New York.
A similar measure was offered Wednesday by six House Democrats, including Representatives Maurice Hinchey, Peter DeFazio, Jay Inslee and John Tierney.
The bills come as Congress debates a sweeping overhaul of financial regulation more than a year after a severe banking and capital markets crisis rocked economies worldwide.
"Restoring Glass-Steagall may have populist appeal, but it is hard to see how one finds 60 votes for it'' to win passage in the Senate, said financial services policy analyst Jaret Seiberg, at investment firm Concept Capital.
"This will be painted as a jobs killer, especially for New York. Plus, conservatives in both parties will balk at having the government forcibly break up private companies,'' he said.
The House approved a regulatory reform bill last Friday that would empower a new systemic risk regulator to order the break-up of risky financial firms in extreme circumstances.