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Fed Has Just Told Congress To Repeal Gramm-Leach-Bliley: Expert

Sept. 15, 2016 (EIRNS)—In a column in yesterday's American Banker, Cornell University Prof. Saule Omarova wrote that the Federal Reserve recommendations to Congress released on Sept. 8 amount to the repeal of the 1999 Gramm-Leach-Bliley Act. Professor Omarova’s piece was headlined "Fed Becomes Latest Cheerleader for Glass-Steagall-Like Reform." She ended the column,

"The Fed has issued a challenge to Congress, and Wall Street is bound to respond. It is critical that those at both ends of the political spectrum who support the idea of making banks safer and more manageable [Omarova had begun by referring to both party platforms calling for Glass-Steagall—ed.] join forces in support of the Fed’s courageous move."

That move may have resulted in significant part from the seminars on "ending too-big-to-fail" held this year by the Minneapolis Federal Reserve Bank, according to one indication received by EIR.

"U.S. bank regulation," Omarova wrote,

"has traditionally been based on the fundamental principle of keeping banking separate from any and all non banking, commercial business. Strict activity limitations are designed not only to protect publicly insured banks from unnecessary risks, but also to ensure that banks allocate credit to commercial firms in a fair and efficient manner.

"With the passage of Gramm-Leach-Bliley, however, the traditional legal separations between publicly subsidized banking and general commerce became much fuzzier and harder to police. The 1999 law authorized formation of big bank conglomerates with wide-ranging powers not only to trade and deal in securities and other risky financial instruments, but also to invest in purely commercial companies"

—and therein, she explained, was included the ability to own commodity operations from oil [Morgan Stanley] to aluminum [Goldman Sachs] to electricity [JPM Chase], and manipulate their prices with destructive results.

Now, in a report under Dodd-Frank Section 620 and awaited for six years, the Fed recommends that Congress reverse this. "Though carefully avoiding any reference to restoring Glass-Steagall," Omarova noted, the Fed recommended repealing "the very same Gramm-Leach-Bliley Act that formally ended the Glass-Steagall era in 1999."

The Fed "cannot guarantee that nothing bad would happen on its watch unless these bank activities are disallowed just as they were before 1999."

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