This is the Cato Daily Podcast for Monday, July 15th, 2013. I'm Caleb Brown.

Some U.S. lawmakers want to reinstitute Glass-Steagall effectively creating a barrier

between investment banks and commercial banks, but some of those same

lawmakers admit that Glass-Steagall would not have prevented the financial crisis.

Louise Bennet, Associate Director of Financial Regulation Studies at the Cato Institute, argues that systemic risk the what exactly a new glass stiegel would be and I think there's a lot of confusion about

the existing structure of banks and something that people need to realize is that there is still a pretty large

wall between the commercial and investment banking operations even in banks that currently perform both functions and all that all that the

repeal in Glass-Steagall did in in in the late 90s was was get a take away the prohibition on affiliation between

commercial and investment banks. So in other words a bank company, so the publicly traded stocks, so for example

J.P. Morgan and Company or Bank of America, could have both an investment banking subsidiary and a commercial banking subsidiary.

So the investment banks obviously just for the listeners that don't necessarily understand.

An investment bank underwrit securities engages in trading does some

derivative activities, although that can also be done out of a commercial bank.

Commercial banks obviously loan, they make mortgage loans, they make commercial loans.

So that's kind of the main distinction.

So all that it did was repeal affiliation.

You still, for example, and I hear a lot in the news about commercial deposits or

insured deposits that that obviously commercial banks take from from ordinary

customers that those insured deposits can somehow be used to fund investment

banking activities. That's simply not factually accurate. A commercial

bank or a commercial banking subsidiary can there's a lot of restrictions on what it can and can't do with those insured deposits and, for example, it cannot use them to fund its activities in the investment bank.

Investment banks fund their activities using overnight paper, repos and that kind of thing.

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