While there may be complicated issues involved in what nearly brought down the U.S. financial system five years ago, Lutts said the crisis was directly related to banks’ risky behavior, which is pretty simple to understand.
“Banks were allowed to take on much more risk than in the past, and the result was the meltdown of 2008,” Lutts said. In a sense, banks were allowed to act like trading shops. The former Lehman Brothers, a prime example of that, took on a huge amount of risk in the mortgage market, and its bankruptcy in September 2008 nearly took down the U.S. economy.
“Banks have one goal,” Lutts said, “to make money.” And given the opportunity, they will do so “any way they can,” even if it means taking on too much risk. That is why it is important to rein in risky behavior, he said.
“A bank should be a bank,” Lutts said. It should take in deposits, make loans, and make money on the spread. “Banks should not be like a casino.”
Julie Livingston, president and CEO of Marblehead Savings Bank, said, “Anything that differentiates community banks from Wall Street banks is probably a good thing.”
Livingston had not read the bill so she could not comment on its specifics, but she said: “I never felt Glass-Steagall should have been repealed in 1999.” It led to what evolved five years ago, she added.
Tierney said the bill has “good sympathy across the board,” but he does not have a timetable for it. He said it will be a struggle to line up support given the gridlock in Congress.
Staff writer Ethan Forman can be reached at 978-338-2673, by email at firstname.lastname@example.org or on Twitter at @DanverSalemNews.