But surely RMBS would have ended up on the deposit-banking side? I mean fundamentally Indymac owned a lot of bad mortgages - with perhaps more intermediation than there would have been otherwise, but we expect retail deposit banks to own mortgages, that's a large part of their raison d'etre.
It wouldn't have prevented every part of the subprime crisis (Bear Stearns wasn't even a deposit bank), but it would potentially have lessened the scope of the crisis.
- Preventatively, it would have restricted the size of the CDO/CDS market. Without access to commercial banking deposits there would have been much less money to invest there.
- Reactively, it would have better protected deposits and saved the FDIC a small fortune. Indymac alone ran the FDIC $9 billion and depositors another $0.27 billion.
Its decline and repeal completely reshaped US investment banking, to the point where the entire industry would have looked completely different if the law had been applied 1933-2008. Of course, that's not entirely a good thing.
Some chunk of the pre-2008 growth has to be attributed to a flexible banking industry keeping us out of liquidity traps, and that was a genuine, non-special-interests reason to alter the law. Clinton didn't (exactly) repeal Glass-Steagall, he formalized a change that regulators had made far earlier by limiting enforcement of the firewall.
I can't say that long-term enforcement of Glass-Steagall would have been better, but I can certainly say that it would have altered the entire landscape that the subprime crisis happened in.