Glass-Steagall is Dead. Long Live 21st Century Glass-Steagall!

Equities Research |

Treasury Secretary Mnuchin made it clear yesterday in a contentious session before the Senate Committee on Banking, Housing, and Urban Affairs that the Trump administration will not be breaking up the big banks.

Prior to Secretary Mnuchin's testimony yesterday, there was a high degree of uncertainty around the administration's position, especially given that the restoration of Glass-Steagall was part of the Republican platform during the presidential campaign. This stance was also reiterated this year after the president was in the Oval Office, and big banks were justifiably concerned. Well, they don't have to worry anymore.

Though Secretary Mnuchin didn't fare well in his questioning by Senator Warren of Massachusetts, the message was crystal clear: The administration's review of existing banking regulations will not encompass any separation of investment banks from commercial banks. Glass-Steagall - whether or not it's wrapped in new clothes - isn't coming back.

The Gramm-Leach-Bliley Act of 1999 effectively repealed Glass-Steagall, and made it possible for the wave of consolidation on the Street that fueled the creation of the financial conglomerates we have today. Secretary Mnuchin said that the administration would support a measure of regulatory reform that would resemble Glass-Steagall in name only. The administration has referred to this as "21st Century Glass-Steagall" - unaware that Senator Warren's bill to reintroduce Glass-Steagall was called by this exact name.

Source: CNBC

The heated dialogue concluded with this exchange:

Senator Warren: Tell me what 21st-century Glass-Steagall means if it doesn’t mean breaking apart those two functions [commercial and investment banking]. It’s an easy question… or an impossible question.

Secretary Mnuchin: It’s actually a complicated question—

Senator Warren: I’ll bet.

Secretary Mnuchin: Because there are many aspects of it. The simple answer – which we don’t support – is breaking up banks from investment banks. We think that would be a huge mistake, but, again, I’m more than happy to listen to your ideas on it, you obviously have strong views and I’d be happy to follow up and listen to them.

Senator Warren: This is just bizarre. The idea that you can say, “We’re in favor of Glass-Steagall but not in breaking up the banks.”

Secretary Mnuchin: We never said we were in favor of Glass-Steagall, we said we were in favor of a 21st-century Glass-Steagall. It couldn’t be clearer.

Senator Warren: “We are in favor of a bill that is called ‘Breaking Up the Banks’ – only, Don’t Break Up the Banks.” Thank you Mr. Chairman. This is crazy.

We'll be looking forward to getting more details from the administration on just what shape the new financial reform will take.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:


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