Issues Related to Repeal of the Glass-Steagall Act

GAO discussed issues related to the repeal of the Glass-Steagall Act. GAO found that: (1) the banking and securities industries now offer similar products and have expanded their activities due to electronics, communications, and regulatory changes; (2) there is no legal or regulatory structure reflecting the realities of today's financial marketplace; (3) if Congress repeals the act, the present mechanism for preserving the banking system's soundness and protecting consumer interests will no longer exist; (4) both industries would need to maintain a level of capital sufficient to support losses resulting from expanded activities; (5) the bank holding structure is the logical entity to organize banking and securities activities, with the Federal Reserve System providing comprehensive oversight; (6) holding companies should maintain sufficient levels of capital to support their commercial banking units, since it would not be appropriate to extend lender-of-last-resort services to the nonbank parts of a holding company; and (7) expanded banking powers could hinder regulators' ability to oversee bank safety and soundness. GAO believes that Congress may wish to phase in Glass-Steagall modernizations in order to develop the resources to oversee the industries.