Congress is embarking on its third attempt in ten years of inter-industry battles to reform the 1933 Glass-Steagall Act, a law that separates commercial banking from most forms of investment banking. Welcome though this is, the financial services marketplace has moved beyond any simple legislative revision and demands more fundamental reform, not only to reduce unnecessary regulatory charges but also to achieve greater efficiencies in serving customers.

Legislation to reform the Depression-era Act has passed both the House Banking and Financial Services Committee and the Commerce Committee. This bill simply recognizes the current state of affairs, requiring a bank holding company to use a separately capitalized affiliate for securities business, subject to a number of statutory firewalls and restrictions. It also establishes a new regulatory regime that allows investment bank holding companies to be affiliated with commercial banks if they satisfy a number of conditions.

New competitors are operating outside the old regulatory regime and providing customers with the services they demand

If the Republican-led Congress and the Democratic administration care about promoting economic growth, allowing capital to flow freely, abolishing unnecessary regulatory taxes, and serving consumers efficiently, then more market-oriented reform must be introduced and the terms of...