United States: 21st Century Glass-Steagall Act Introduced In The Senate

On April 6, the 21st Century Glass-Steagall Act of 2017 (GSA) was introduced in the U.S. Senate by Elizabeth Warren, D-Mass., with John McCain, R-Ariz., Maria Cantwell, D-Wash. and Angus King, I-Maine co-sponsoring. The bill was referred to the Committee on Banking, Housing, and Urban Affairs, where hearings are currently taking place. Some of the key points of the GSA are as follows:

  1. GSA would prohibit an insured depository institution (IDI) from (i) being or becoming an affiliate of any insurance company, securities entity, or swaps entity, (ii) being in common ownership or control with an insurance company, securities entity, or swaps entity, or (iii) engaging in any activity that would cause the IDI to qualify as an insurance company, securities entity, or swaps entity. For the purpose of the GSA, a securities entity includes any entity engaged in (1) the issue, flotation, underwriting, public sale, or distribution of stocks, bonds, debentures, notes or other securities; (2) market making; (3) activities of a broker dealer; (4) activities of a futures commission merchant; (5) activities of an investment adviser or investment company; and (6) hedge fund or private equity investments in the securities of either privately or publicly held companies. However, a securities entity does not include a bank that, pursuant to its authorized trust and fiduciary activities, purchases and sells investments for the account of its customers or provides financial or investment advice to its customers. For the purpose of the GSA, a swaps entity includes any swap dealer, security-based swap dealer, major swap participant or major security-based swap participant registered with the Commodities Futures Trading Commission or the Securities and Exchange Commission.
  2. The GSA would prohibit bank holding companies and their subsidiaries and affiliates from engaging in the business of being a securities entity, including dealing or making markets in securities, after exchange agreements, or structured or synthetic products (subject to certain exceptions). Additionally, bank holding companies may not engage in proprietary trading, own, sponsor or invest in hedge funds or private equity funds, engage in market making or engage in prime brokerage activities.
  3. Additionally, the GSA puts prohibitions on who can serve as an officer, director, employee or other institution-affiliated party of any insured IDI, stating that no employee, officer, or director of an insurance company, swaps entity, or securities entity may do so (which exceptions may be granted by the appropriate federal banking agency regulator).
  4. The GSA would specify what activities are considered the "business of banking" to prevent national banks from engaging in other financial activities and preventing nonbanking activities from being treated as "closely related" to banking.

    1. The GSA states that the term "business of banking" is limited to the following core banking services:

      • Receiving deposits.
      • Extending credit to individuals, businesses, not-for-profits and other entities (including the discounting and negotiating of promissory notes, drafts and other evidences of debt, and loaning money on personal security).
      • Participation in payment systems (instruments, banking procedures and interbank funds transfer systems that ensure the circulation of money).
      • Buying, selling and exchanging coin and bullion.
      • Investing in investment securities as may be jointly prescribed by regulation by the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve System. However, the business of dealing (as opposed to investing) in securities and stock shall be limited to purchasing and selling securities and stock without recourse, solely upon the order and for the account of customers, and in no case for its own account (including a prohibition on underwriting any issue of securities or stock).
    2. National banking associations may not invest in structured or synthetic products or otherwise engage in the business of receiving deposits or extending credit for transactions involving structured or synthetic products.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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