WASHINGTON – Two senators, one from each party, called Wednesday for breaking up large financial firms that perform both commercial and investment banking, adding a wrinkle to already difficult talks in the Senate on how to regulate Wall Street.
Sens. John McCain, the former Republican presidential candidate from Arizona, and Maria Cantwell, a Washington Democrat, introduced legislation that would prohibit commercial banks from undertaking brokerage activities.
Such a ban would strike directly at such institutions as Goldman Sachs, JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp. and Wells Fargo & Co., which engage in both commercial and investment banking.
Democrats introduced a similar bill in the House on Wednesday.
“Banks need to be lending to small businesses and homeowners, not fueling risky Wall Street investment schemes,” McCain said in a statement.
The Senate proposal, bolstered with McCain’s backing, comes as the Senate Banking Committee seeks to bridge differences within the committee on a sweeping overhaul of financial regulations. Though the House passed its own sprawling regulatory bill last week, the Senate is not expected to have one finished until March.
Lobbyists, aides and senators say committee members are considering a proposal that could resolve one of the legislation’s major sticking points: a proposed Consumer Financial Protection Agency pushed by the Obama administration but vigorously opposed by banks.
Under the proposed compromise, the agency would have authority to write consumer regulations covering lending and other bank transactions. But enforcement of the regulations would be left to specific banking regulators, not to the consumer agency.
McCain and Cantwell, in calling to separate commercial from investment banking, have introduced yet another element for banks to oppose in the regulatory debate.
“The better solution is to modernize the regulatory framework to account for the modern financial services industry rather than returning the industry and consumers to the 1930s,” said Scott Talbott, the chief lobbyist at the Financial Services Roundtable, an industry group that represents some of the largest Wall Street institutions.