Getty Images
Sen. Elizabeth Warren listens to testimony. She is one of the authors of the ’21st Century Glass-Steagall Act.
WASHINGTON—Sen. Elizabeth Warren (D., Mass.), one of Wall Street’s most outspoken critics, is putting her populist muscle behind a bipartisan bill to reinstate Depression-era laws separating plain-vanilla banking activities from riskier investment-banking bets.
On Thursday, Ms. Warren launched a Twitter campaign to rally support for the bill with the motto “Banking Should Be Boring."
She held a briefing with reporters to discuss “the 21st Century Glass-Steagall Act," a reference to the 1933 statute that separated commercial- and investment-banking activities before being repealed in 1999.
She lamented the growing largeness of Wall Street banks at a hearing with top regulators.
"The four largest banks are now 30% larger than they were just five years ago, and they continue to engage in dangerous high-risk practices," Ms. Warren said.
She said lawmakers need to “keep the gamblers out of our banks" by separating traditional bank activities such as home loans and checking accounts from riskier activities such as trading derivatives and investment banking.
The legislation faces long odds to becoming law. Lawmakers have found it difficult to pass even uncontroversial measures, and the banking industry still retains many champions on Capitol Hill.
Two other senators, Sherrod Brown (D., Ohio) and David Vitter (R., La.), have made little headway with legislation they introduced earlier this year to force banks to sharply raise capital levels, even after receiving significant attention when they unveiled the measure.
Yet the involvement of Ms. Warren, who is sponsoring the legislation with Sen. John McCain (R., Ariz.) and others, was enough to marshal quick industry response.
Hamilton Place Strategies, which advocates on behalf of banks, put out an email Thursday with the subject line “Setting the Record Straight: Glass Steagall Would Not Have Prevented 2008 Crisis."
Tony Fratto, a former Bush administration official who is a partner at Hamilton Place Strategies, said that “Even trying to implement this proposal would do damage to our ability to compete in a global economy."
Ms. Warren’s effort comes as regulators say they are taking steps to limit the risks banks pose to the financial system by forcing them to either shrink or hold enough capital to protect themselves, and taxpayers, in the event of another crisis.
On Thursday, top officials from the Treasury Department, Federal Reserve and other banking agencies told a Senate panel that they have made significant progress in responding to the 2008 financial crisis, including placing greater constraints on banks.
Earlier this week, banking regulators proposed forcing eight large U.S. banks to hold billions of dollars in additional capital against all the assets on their books.
The proposal to increase the so-called leverage ratio is part of a broader plan to rein in the banks, which is likely to include requiring that banks hold minimum levels of long-term debt, face a special surcharge agreed upon by international regulators and potentially face additional capital requirements based on their reliance on risky forms of short-term funding.
Those markets were at the center of the 2008 financial crisis, when banks and other financial firms found themselves unable to access the short-term financing they typically relied upon.
While banks have become less reliant on such funding, Fed governor Daniel Tarullo told lawmakers Thursday that structural changes are needed to further reduce the use of such volatile forms of financing.
"A financial system heavily reliant on such funding could create a good bit of systemic risk even if no individual firms were thought to be too big to fail," Mr. Tarullo said.
Yet lawmakers remain unconvinced that regulatory efforts will be enough to prevent a future crisis. Mr. Brown said he was concerned that big banks could “game" recently proposed capital rules, making an end-run around stricter requirements.
"It is time to finish implementing these reforms as quickly as possible, to put an end to ‘too-big-to-fail,’ and to protect American taxpayers from ever again bailing out a failing financial company," Sen. Tim Johnson (D., S.D.), chairman of the Senate Banking Committee, said at a hearing with top regulators.
Write to Michael R. Crittenden at michael.crittenden@dowjones.com
A version of this article appeared July 12, 2013, on page C3 in the U.S. edition of The Wall Street Journal, with the headline: New Glass-Steagall Is Urged. 