Fed Recommendations to Congress Beg Glass-Steagall Act
Sept. 14, 2016 (EIRNS)—The Financial Stability Oversight Committee (FSOC) on Sept. 8 delivered a report to the Congress (specifically, to the House Financial Services and Senate Banking Committees), of which the Federal Reserve’s portion is summarized by one source as follows:
"The Federal Reserve Board recommended that Congress repeal the authority of FHCs [Financial Holding Companies] to engage in merchant banking activities; repeal the grandfather authority for certain FHCs to engage in commodities activities, not permitted by the 1957 Bank Holding Companies Act."
Two other recommendations to Congress by the Fed are more obscure. But the first two recommendations challenge Congress on Glass-Steagall; it would take care of both.
Merchant banking activities are those of underwriting insurance, stock and securities transactions, financial advice, operations on international financial markets for corporations. An FHC which could not engage in these, also could not lend any funds (from its depository or commercial bank unit) or exchange any assets or liabilities with subsidiaries engaged in merchange banking; so, in effect, it would have to separate from them.
Scandals from big banks dealing in commodities, from aluminum to electricity, have been numerous, damaging customers for those commodities. The Wall Street banks all have been exempted from the 1957 Act, and the Fed is telling Congress to end those exemptions; but the same would be accomplished, faster and more cleanly, by restoring Glass-Steagall, which prohibited commodities dealing (other than gold and silver) by commercial banks.
The report was a required on under Section 620, Dodd-Frank Act.