During the showdown of 2010 on Glass-Steagall, then-President of the Kansas City Federal Reserve Bank Thomas Hoenig was an important booster of the need for the restoration of the 1933 bank separation act. Upon his retirement from his Kansas City Fed post, Hoenig was named Vice Chairman of the Federal Deposit Insurance Corporation (FDIC), a post he still holds. He remained almost entirely under the radar screen until earlier this month, when he appeared as a witness at Senate hearings, and gave one of his first interviews to the London Financial Times. His resurfacing coincided with the JP Morgan Chase blowout and the significant resurgence of support for Glass-Steagall, including Rep. Marcy Kaptur's H.R. 1489. Now, some sane Republicans are pushing the idea that Hoenig should be the lightning rod for a stampede of GOP support for the restoration of Glass-Steagall. Not a bad idea, but will Hoenig rejoin the fight?
On May 10, Hoenig, along with former Federal Reserve Chairman Paul Volcker and MIT economist Simon Johnson, appeared as witnesses at a hearing of the Senate Banking Subcommittee on Financial Institutions and Consumer Protection, chaired by Sen. Sherrod Brown (D-Oh.). Brown used the hearing to reintroduce his SAFE Banking Act (Safe, Accountable, Fair and Efficient Banking Act), originally introduced in 2010 with then-Sen. Ted Kaufman (D-Del.) which had 33 co-sponsors from both parties.
Three days after his testimony, Hoenig gave an interview to the Financial Times' Shahien Nasiripour, in which he called for broker-dealer and trading units to be hived off from the banks. The FDIC, which he vice-chairs, is part of the Financial Stability Oversight Council, created under Dodd-Frank, with authority to issue regulations. The authorities vested in the FSOC could include the breakup of the banks or the enforced separation of certain units engaged in purely speculative activities.
The reality is, however, that these half-measures are no better than the still-nonexistent Volcker Rules, which was pushed in the first place to block Glass-Steagall at the point in the summer of 2010, when the votes existed in the U.S. Senate to pass it and break up the banks forever.
Now, with Europe in an endgame meltdown and Wall Street hopelessly bankrupt, there is no alternative to Glass-Steagall, precisely as enacted in June 1933. There is no time to waste, and Hoenig should clearly add his name to the growing list of sane people demanding Glass-Steagall now.