Glass-Steagall Return Would Boost Banks, FDIC’s Hoenig Says

A revival of the Glass-Steagall Act, the Depression-era law that separated commercial and investment banking, is “absolutely necessary” to protect the U.S. financial system, Federal Deposit Insurance Corp board member Thomas Hoenig said in a Bloomberg Radio interview.

Using Dodd-Frank Act powers to break up banks one-by-one is the wrong approach to removing the threat that risky trading could spark a repeat of the 2008 credit crisis, Hoenig said today on “The Hays Advantage” with Kathleen Hays.

“It’s picking winners and losers based on what they present to you, and I think it is fraught with problems,” said Hoenig, who retired as president of the Federal Reserve Bank of Kansas City before joining the FDIC in April.

Dodd-Frank, the regulatory overhaul enacted in response to the worst financial crisis since the 1930s, gives regulators power to force banks to simplify their business if so-called living wills can’t show how they could be unwound in the event of a collapse. Hoenig, 65, said the government should go further, reinstituting the separation that ended when Glass- Steagall was repealed in 1999.

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Glass-Steagall Return Would Boost Banks, FDIC’s Hoenig Says