In the midst of the Great Depression, Congress approved the Banking Act of 1933, which among other things, separated investment banking from commercial banking. This measure, more commonly referred to as the Glass-Steagall Act, was adopted after many banks had taken depositors' money, invested it in the stock market, and lost big time. This resulted in people pulling their money out of banks and led to a financial disaster. By separating commercial lending from investment activity through the Glass-Steagall Act, Congress took a prudent step to protect the American public from greedy banks.
Unfortunately, Congress ignored history and reversed the Glass-Steagall Act in 1999 through what is commonly referred to as the Gramm-Leach-Bliley Act. The repeal of Glass-Steagall contributed a great deal to the financial collapse we recently experienced. The greed of these megabanks resulted in the American people having to pay the price as they bailed out these oversized financial institutions.
We must learn from history once more and restore commonsense safeguards to the financial sector. That is why today I introduced the Glass-Steagall Restoration Act, which would separate investment banking from commercial banking. I was pleased to have U.S. Reps. Peter DeFazio (D-OR), Jay Inslee (D-WA), Marcy Kaptur (D-OH), Jim McDermott (D-WA), and John Tierney (D-MA) all sign on as original cosponsors to this bill, which would break up these oversized banks, restore consumer protections, and avoid future financial collapses like the one that began last year.
The repeal of Glass-Steagall has exposed the U.S. economy to a level of risk that is simply unacceptable. This bill reinstates an important protection that will help ensure average Americans are not taken advantage of by banks and help mitigate the risk of another financial meltdown like the one from which we're still recovering.
Today, just four huge financial institutions hold half the mortgages in America, issue nearly two-thirds of credit cards, and control about 40 percent of all bank deposits in the U.S. In addition, the face value of over-the-counter derivatives at commercial banks has grown to $290 trillion, 95 percent of which are held at just five financial institutions. We cannot allow the security of the American economy to rest in the hands of so few institutions.
When you take a look at history and see the situation in which we find ourselves today, it is clear that we need to bring back the Glass-Steagall Act. The bill I introduced today would statutorily require banking giants to decide whether they want to serve as a commercial bank or an investment bank and require them to cease activities in one of those areas within one year of the bill's enactment. This bill would help right the ship and return our country to the days when banks either participated in commercial lending activities or investment activities, but not both.
We need to bring the American banking system back to earth so that it functions in a way that benefits all Americans, not just bank executives who stand to make a fortune if things go well and a smaller fortune if they don't. The financial system in this country has been rigged and this bill will help undo the circumstances that led to this most recent collapse while helping to prevent future ones.
Congressman Maurice Hinchey (D-NY) is serving in his ninth term representing New York's 22nd Congressional District. He is a member of the Joint Economic Committee.