OVERVIEW

Credit unions were unfairly lumped in with the Wall Street banks when regulators enacted legislation to curb the risky behavior and investments that led to one of the nation’s worst recessions in history. For the last decade, community-based financial institutions – some with few resources – have had to keep up with new requirements intended for the bad actors that caused the crisis. As a result, 2,528 credit unions have merged out of existence or been forced to shut their doors for good while the largest financial institutions, bailed out by taxpayers, continue to grow. The time is ripe for Congress to reevaluate the merits of a modernized Glass-Steagall Act.

The banking industry has been fined $243 billion since the financial crash of 2008. *

* Goldstein, S. (2018, Feb. 24). Here’s the staggering amount banks have been fined since the financial crisis

From 2008 to 2017, the National Credit Union Administration (NCUA) chartered only 29 new federal credit unions while, during that same period, 2,528 credit unions closed or merged out of existence.*

* National Credit Union Administration. 2018. Credit Union Chartering Events (Download).

Compliance expenses have increased 289 percent since 2010 and the number of full-time equivalent (FTE) staff devoted to “total compliance activities” has increased 114 percent since 2010.*

*NAFCU’s 2017 Federal Reserve Survey

WHITEPAPER

NAFCU’s whitepaper outlines how a modern Glass-Steagall Act would protect American consumers from the exploitive behavior of “too big to fail” institutions. It also discusses how the act could help limit the economic impact of these institutions in the event of an economic downturn.

Specifically, the Act could:

  • protect consumers against future financial crises;
  • ensure traditional depositories can continue to thrive in a stable financial marketplace;
  • reduce the competitive inequalities and moral hazard that arises when large banks take risks on consumer deposits to generate profits;
  • improve overall financial stability in times of stress by separating commercial and investment banking.

To learn more about this analysis, please download NAFCU’s whitepaper below.


Download

BACKGROUND

The Glass-Steagall Act (GSA) is the modern name given to the Banking Act of 1933, which was established in response to the stock market collapse and depression in the late 1920s. The legislation established many safeguards to protect private citizens in the future, but most notably it created the Federal Deposit Insurance Corporation (FDIC), which insures private bank funds for consumers.

However, in 1999, the Gramm-Leach-Bliley Act (GLBA) effectively repealed several key sections of the GSA, resulting in an under-regulated environment that benefited large institutions by incentivizing megamergers. This resulted in the creation of institutions that are able to engage in virtually unlimited activities, oftentimes outside the reach of federal and state regulators.

Eventually, this unregulated environment resulted in the consolidation of commercial and investment banks into large financial conglomerates and gave rise to the current ensemble of “too big to fail” institutions, whose losses during the financial crisis accounted for three-fifths of worldwide losses recorded from mid-2007 to the spring of 2010.

In recent years, several bipartisan efforts have voiced support for the reinstatement of the GSA, raising concerns of “too big to fail” institutions.

For more information, please download the whitepaper or contact NAFCU’s advocacy team.

Share of Total Banking Organization Assets

  • Large BHCs
  • Small BHCs
  • Credit Unions
  • Bank Assets Not Held by BHC

Sources: National Information Center; FR Y-9C; FFIEC 031;

FFIEC 041; NCUA 5300