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Mr. BURRIS. Mr. President, in early 1933, just after Franklin Roosevelt was sworn in as President, the Great Depression was at its worst. The American economy had been shaken to its core. Financial institutions had closed, people's life savings had evaporated, and no one knew where to turn. That is when the unthinkable happened: Much of the American commercial banking system collapsed.
President Roosevelt and his colleagues in the House and Senate sprang into action. Congressman Henry Steagall and Senator Carter Glass, both Democrats, worked with the President to write sweeping reform legislation. They set out to get the economy back on the road to recovery. The resulting law--known as the Glass-Steagall Act of 1934--helped to lay the foundation for sensible bank regulation in this country. It would come to define America's financial landscape in the decades that followed the Depression.
Mr. President, it is in this spirit that I ask my colleagues to join me today in supporting major financial reform and making sure that the Volcker rule is included in our financial legislation. If we pass the bill that has been introduced by Senator Dodd, we can help prevent another economic crisis and reinstate some of the basic protections included in Glass-Steagall.
Almost 80 years ago, this legislation established the FDIC, which still insures bank deposits--and it drew a sharp distinction between commercial banks and investment banks. In the wake of economic collapse, Congress recognized that these dueling roles often came with massive conflicts of interest. In some cases, this resulted in risky behavior. In others, fraud.
So Glass and Steagall designed their bill to set up a barrier between commercial banks and investment banks. The law prevented these two activities from mixing and kept financial professionals honest and accountable. For much of the next half century--as our economy recovered from the Great Depression and prosperity returned to America--the system worked just as it was intended.
As a former banker, I can personally speak to the significance of the Glass-Steagall Act in helping to keep our financial system on an even keel. This important law was essential to the stability of our economy--right up to the moment when my Republican friends repealed it--a little more than a decade ago.
In 1999, the Republican Congress decided there was no longer a need to keep commercial and investment banks separate, so they passed a bill that rolled back key portions of the Glass-Steagall Act. Unfortunately, President Clinton signed it into law, and with the stroke of a pen, the walls between commercial banks and investment banks were torn down.
Almost overnight, commercial institutions started to move into this fresh territory. They started to underwrite CDOs and mortgage-backed securities. Then they began to trade them. Commercial lenders even created new investment vehicles, which bought these very same securities. Without the Glass-Steagall Act, it was a free-for-all.
As soon as the regulations were removed, big banks swooped in without regard to responsible lending practices. Conflicts of interest sprang up everywhere. Fraud was allegedly committed by some of our largest and most respected institutions. Then, 2 years ago, our economy went into a massive downward spiral--a great recession from which we are still trying to recover.
The repeal of Glass-Steagall certainly did not cause this financial crisis on its own. But many believe it was a contributing factor, and unless we can take action to close this regulatory gap, the absence of Glass-Steagall could expose our economy to major systemic risk in the future.
So, today, as the Senate stands on the verge of considering major financial reform, I would urge my colleagues to reinstate some of these protections. We must prevent big banks from engaging in these irresponsible practices ever again. That is why I am proud to support the Volcker rule, which my friend, Senator Dodd, has included in his financial reform bill.
This provision will prevent traditional banks from making private equity investments. It will stop them from running hedge funds. It will help keep them from placing bets on the market. As a key part of Senator Dodd's bill, the Volcker rule will essentially serve as a modernized version of the Glass-Steagall Act.
It would stop short of reinstating the old law of 1933, but it would help to prevent fraud, discourage conflicts of interest, and keep large banks from engaging in reckless behavior. It would also allow us to help regulate mergers among our biggest banks so we can prevent the market from becoming too concentrated or incurring systemic risk.
Mr. President, I believe each of these key components is a necessary part of any financial reform bill. That is why I am proud to join Senator Dodd, as well as President Obama, in supporting the Volcker rule. Colleagues, let's learn from the events of history. Let's impose fair and reasonable regulations so a handful of banks would not be able to undermine the American economy with a few foolish decisions. Let's pass a financial reform bill that includes the Volcker rule.
Mr. President, I yield the floor, and I suggest the absence of a quorum.
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