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      In October 1929 the stock market crash ushered in the Great Depression. Over the ensuing four years, GDP tanked, unemployment spiked and 10,000 banks failed. Little was done to try to right the nation’s foundering ship as the president and Congress believed that the free market would prevail.
Al-Ortbals-mugOrtbals   With the election of 1932, however, Franklin Roosevelt and a large Democrat majority were swept into office with new ideas and a can do, will do attitude. A plethora of legislation was passed after the inauguration in 1933 — one of which was the Banking Act of 1933, thence forward known as the Glass-Steagall Act after its authors, Sen. Carter Glass and U.S. Rep. Henry Steagall.
   Glass, a former Treasury Secretary and Steagall, chairman of the House Banking and Currency Committee, believed that one of the primary reasons for the 1929 crash was that banks were far too speculative, not only investing their assets in the stock market but also selling shares to the public. Unsound loans were issued to companies in which the banks had invested, and clients were encouraged to buy those same stocks.
   Glass and Steagall’s answer to this problem was to separate commercial banking from investment banking. Banks had to decide if they were going to do business on Main Street or on Wall Street but they couldn’t do both, and they had one year to decide.
   The Glass-Steagall Act served America well for more than 60 years but there was constant pressure to break down the barrier that Glass-Steagall had created. Over the years there were 12 different attempts to repeal the GSA and finally, in 1999, the Gramm-Leach-Bliley Act achieved it. It didn’t take long for the hogs to get to the trough. Feeding on low interest rates and lax regulation, the big commercial banks pushed the housing bubble to extraordinary levels.
   The housing market began to crash in 2007 and the financial system nearly followed suit in 2008. If not for the intervention of the federal government, most experts say, we would have suffered another great depression — maybe even worse than the 1930s variety.
   The repeal of the GSA was clearly the trigger to the crisis. Five years later we’ve not fully recovered. It would have seemed logical to recognize and admit the mistake and simply re-enacted Glass-Steagall. But that’s not what we did.
   Instead, Congress enacted the Wall Street Reform and Consumer Protection Act, aka, Dodd-Frank. A long and extremely complicated bill, Dodd-Frank used a broad brush to impose a myriad of new rules and regulations on community banks and investment banks alike. But, amazingly, it did little to rein in the behemoths of Wall Street. Three years later, only one-third of its provisions have been implemented and community bankers don’t know when the next regulatory shoe will drop or how big that shoe will be.
    Recently, Sens. Elizabeth Warren (D-Mass.), John McCain (R-Ariz.), Maria Cantwell (D-Wash.) and Angus King (I-Maine) introduced the 21st Century Glass-Steagall Act. This proposed legislation would separate traditional banks that have savings and checking accounts and are insured by the Federal Deposit Insurance Corporation from riskier financial institutions that offer services such as investment banking, insurance, credit default swaps and hedge fund and private equity activities. The bill would rebuild the barrier between Main Street and Wall Street and would make “Too Big to Fail” institutions smaller and safer, minimizing the likelihood of another government bailout.
   We can’t continue to let banking reform stall. After Mr. and Mrs. Homeowner were forced to step in to save the big banks from themselves in 2008 and 2009, the simplest, most effective change we could have made was to bring back Glass-Steagall. It’s not too late. The bill has bipartisan support and Congress should move on it quickly.
   Bankers need to decide if they are George Bailey or Jimmy the Greek. They shouldn’t be both.
   Alan J. Orbals is president and publisher of the Illinois Business Journal. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. or (618) 659-1997.