Finally, an idea for real reform has come out of Congress. Senators Maria Cantwell and John McCain introduced the Banking Integrity Act of 2009 that would reinstate provisions of the Glass-Steagall Act of 1933 that blocked banks from mixing consumer and investment banking.
In 1999, Congress and President Clinton repealed the act in an effort to give financial companies more freedom to move money in ways that would make them more competitive. The consequence of this deregulation was that it was now easier for banks to wager deposits on risky financial instruments whose viability was never proven but whose risk was revealed with the collapse of the financial sector under the weight of these instruments in 2008 and 2009.
Reinstatement of the barrier between consumer and investment banking represents only one part of necessary reform. In addition, Congress needs to revisit the elements of the 1999 changes to the Community Reinvestment Act that liberalized mortgage lending practices with the implied promise of government bailouts for high risk lending.
What this kind of reform shows is that more and more complex laws are not what Congress needs to enact in order to effectively regulate. If Congress were to place both of these reforms into law, it will have gone a long way toward reestablishing the real and necessary regulation from the federal government over banking, investing, and lending. This kind of reform could also serve as a model for the kinds of legislative remedies to other pressing problems like health care reform and tax policy.