By Peter Schroeder - 07/11/13 04:50 PM EDT
A bipartisan quartet of senators are seeking to break up the nation's biggest banks through legislation that would rebuild a firewall between commercial and investment banking.
Sens. Elizabeth Warren (D-Mass.), Maria Cantwell (D-Wash.), John McCain (R-Ariz.) and Angus King (I-Maine) unveiled legislation Thursday that would largely reimpose the Glass-Steagall Act, calling it a necessary protection for taxpayers and a way to prevent financial institutions from becoming "too big to fail."
"Despite the progress we've made since 2008, the biggest banks continue to threaten the economy," Warren said. "The four biggest banks are now 30 percent larger than they were just five years ago, and they have continued to engage in dangerous, high-risk practices that could once again put our economy at risk.
"The 21st Century Glass-Steagall Act will reestablish a wall between commercial and investment banking, make our financial system more stable and secure, and protect American families."
The new legislation would create a similar firewall, but would also modernize it to prohibit new tactics employed by banks that carry heavy risk, such as trading types of complex derivatives or taking on hedge fund or private equity activities.
The bill would specifically define what qualifies as "business of banking" to prevent big banks from getting involved in riskier activities.
Proponents argue that by splitting traditional banks from investment banking, the bill reduces the chances of future bailouts by shrinking banks, and also by removing the implicit guarantee that comes with the FDIC backstop.
McCain and Cantwell have previously pushed legislation to reimpose Glass-Steagall in the wake of 2008's financial crisis. But they now have brought on a potent Wall Street critic in Warren, as well as a moderate in King, who identifies as an independent but caucuses with Democrats.
McCain voted in favor of 1999's Gramm-Leach-Bliley Act, which repealed key portions of the original Glass-Steagall. But McCain now says that repeal has allowed for a "culture of dangerous greed and excessive risk-taking" to take root on Wall Street.
"Big Wall Street institutions should be free to engage in transactions with significant risk, but not with federally insured deposits," he said.
McCain voted to approve the repeal legislation when it came out of the Senate, but did not vote on the final conference report, as he was campaigning for the 2000 GOP nomination.