Sen. John McCain, R-Arizona, and Sen. Maria Cantwell, D-Washington, proposed on December 16, 2009 rebuilding the barriers separating commercial banks, investment banks and insurers established under the Depression Era Glass-Steagall Act. In 1999, the requirements that the three industries remain separate were eliminated by the Gramm-Leach-Bliley Act. The legislation introduced by Sens. McCain and Cantwell would require financial services firms that engage in two or more of commercial banking, investment banking and insurance to divest all but one of those businesses within one year. Sens. Cantwell and McCain indicated that their bill was intended to prevent the need for future massive bail-outs of the financial services industry.

Many have asserted that forays by commercial banks into investment banking were a primary cause of the financial meltdown of the two years. However, the Obama administration’s proposals to modernize financial services regulation earlier this year did not recommend repeal of Gramm-Leach-Bliley.

It is far from certain that the Cantwell-McCain bill will become law. Sen. Chris Dodd, Chairman of the Senate Banking Committee, indicated in comments to reporters on December 17, 2009 regarding the Cantwell-McCain that he was not sure Gramm-Leach-Bliley “could be repealed” at this point.

If divestitures were required, some financial services firms that acquired or built businesses prior to the recession might find it challenging to recover their investments. Some healthy financial services firms might have opportunities for strategic acquisitions, buy firms seeking to divest commercial banking, investment banking or insurance businesses and assets might find a dearth of interested buyers. The potential impact on the balance sheets of losses by financial services firms related to forced divestitures of commercial banking, investment banking or insurance businesses has not been estimated.