The following is the text of a letter sent on Aug. 10 to Rep. Marcy Kaptur (D-OH), the original sponsor of H.R. 1489:
AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS
815 Sixteenth Street, N.W. Washington, D.C. 20006
Richard L. Trumka, President
Elizabeth H. Shuler, Secretary-Treasurer
Arlene Holt Baker, Executive Vice-President
AUGUST 10, 2011
Dear Representative Kaptur:
I am writing to express our support for your bill, H.R. 1489, "The Return to Prudent Banking Act."
Because of the Dodd-Frank Act of 2010, we now have a foundation to rebuild our country's financial sector and bring accountability to Wall Street. However, despite will intentioned efforts, Dodd-Frank did not adequately address financial institutions that have become "too big to fail." Attempts to place proprietary trading restrictions on big banks were put in place, yet these efforts only scratched the surface on what is needed to narrow the scope of institutions that are powerful and threaten the crumbling of our economy if they were to ultimately fail.
H.R. 1489 would further strengthen our financial system by reinstating the Glass-Steagall Act of 1933. Glass-Steagall established three areas of financial activity: commerical banking, investment banking, and insurance. As a result of Glass-Steagall, no single company could be both an investment bank and a commercial bank. Glass-Steagall was intended to protect againt potential conflicts between the function of protecting personal deposits, the insurance function and speculative investment activity.
This structure worked for decades and proved to be an effective way of limiting the systemic risks posed by too big and too interconnected to fail financial institutions. However, in 1999 the Gramm Leach Bliley Act repealed Glass-Steagall and unwisely allowed for the creation of large banks that were no longer subjected to the safeguards that Glass-Steagall held in place. The removal of these safeguards arguably resulted in the beginning of our most recent financial collapse.
Our financial markets were ultimately exposed to an insurmountable amount of risky behavior by these large financial institutions and we must now limit the potential for further economic collapse by restoring safeguards once held in place by Glass-Steagall. H.R. 1489, the Return to Prudent Banking Act would do just that.
We thank you for introducing such a vital piece of legislation and look forward to your continued support.
William Samuel, Director
Government Affairs Department