The Washington Post Fact Checker today rated Bernie Sanders’s claim that the “shadow banks” got their funds from the “federally insured bank deposits of big commercial banks — something that would have been banned under the Glass-Steagall Act.” Read analysis below:
The Pinocchio Test
We can find little support for Sanders’s statement that Glass-Steagall banned commercial banks from making loans to investment banking firms to facilitate their trading in the shadow-banking arena. Indeed, the two examples he cited did not fail because of loans received by commercial banks, according to the exhaustive government-sponsored investigation of the crisis. Indeed, in the case of AIG, the problems largely stemmed from a law that Sanders himself supported.
On a broader level, Sanders would be on more solid ground to argue that the commingling of investment and commercial banking functions permitted by the 1999 partial repeal allowed the growth of megabanks such as Citigroup that exacerbated the crisis. The observation of Rickards, the former hedge fund general counsel, that such shadow-bank loans routinely required Fed permission before the 1999 law is also instructive — though Rickards also says the 2000 law that Sanders supported was an important factor in the crisis.
We wavered between Two and Three Pinocchio. But this was a prepared — and important — speech by Sanders. So it’s essential to get the facts straight.
Three Pinocchios