NEW CASTLE, Del. June 26, 2013 – New Castle County Executive Thomas P. Gordon praised the resolution sponsored by State Sen. Bruce E. Ennis and State Sen. Robert L. Venables Sr. urging U.S. Congress to restore the strength of the Glass-Steagall Act in order to avoid the phenomenon that led to the financial panic of 2008.
The Federal Banking Act of 1933, known as the Glass-Steagall Act, protected the public interest by calling for a separation of safe deposits in commercial banks from merging with risky, investment banks that were more speculative in nature. Glass-Steagall Act was repealed in 1999 and preceded the mega bank mergers of the early 2000s, which gave birth to the concept of “too big to fail.”
When the market crashed in 2008, the federal government instituted the Troubled Asset Relief Program to either purchase or insure up to $700 billion in troubled assets owned by financial institutions amidst the financial panic. It was all done on the backs of American taxpayers.
“This was one of the major unraveling’s,” County Executive Gordon said. “After the Great Depression, there were certain regulations put in place to prevent another 1929 crash. Unfortunately, many were taken away in the late ‘90s and the 2000s and contributed to the crisis of 2008.”
New Castle County Chief Administrative Officer David Grimaldi added that the Glass-Steagall Act had prevented major financial panics from occurring since the Great Depression.
“Financial panics and economic depressions were fairly common during the century which preceded the Great Depression, occurring at a rate of one every twenty or so years” said Grimaldi, who formerly worked for Morgan Stanley on Wall Street. “The Glass-Steagall Act contributed to an era of relative financial stability which sadly came to an end with its repeal.”
Grimaldi said it was important for Congress to take precautions since he believed there was an elevated probability of another correction or crash.
“Both in duration and magnitude, the current equity bull market has become long in the tooth.” Grimaldi said. “It is critical that Congress take proactive measures to mitigate the risk of another financial collapse. Reinstating the Glass-Steagall Act would be an important step.”