US Treasury's Mnuchin opposes breakup of banks
New York (AFP) – The Trump administration does not support a return to the Depression-era rule requiring a separation of retail and investment banking, Treasury Secretary Steven Mnuchin said Thursday.
It would be “a huge mistake” to break up the banks, Mnuchin told a Senate committee, but there were some aspects of the Glass-Steagall law, enacted in 1933 and repealed in 1999, that could be revived in fresh regulation.
“The integration of commercial banking and investment banks has gone on for a long period of time,” Mnuchin said at a hearing.
“That’s not what caused the problems during the (2008) financial crisis. And if we did go back to a full separation, you would have an enormous impact on liquidity and lending.”
The remarks came during a sharp exchange with Democratic Senator Elizabeth Warren, an outspoken critic of large banks, who has supported breaking up JPMorgan Chase, Citigroup and other giants.
Warren pressed Mnuchin on what she called the administration’s “reversal” on banking regulation and whether it resulted from meetings between Trump, Mnuchin and “big banks, CEOs and lobbyists.”
“What do you think Glass-Steagall was if it wasn’t separating commercial banking from investment banking?” Warren pressed.
Mnuchin said he supports “a 21st Century Glass-Steagall,” but did not explain what that would mean for banking regulation.
However, Trump has floated the possibility of a return to some form of Glass-Steagall, without offering specific plans, creating speculation about how banking policy will evolve.
“I’m looking at that right now,” Trump told Bloomberg News on May 1. “There’s some people that want to go back to the old system, right? So we’re going to look at that.”
The 2016 Republican platform also referenced the old law, saying, “We support reinstating the Glass-Steagall Act of 1933 which prohibits commercial banks from engaging in high-risk investment.”
Mnuchin said the administration’s current stance is not a reversal.
“If we had supported a full Glass-Steagall, we would have said at the time that we believed in Glass-Steagall, not a 21st Century Glass- Steagall,” he said. “We were very clear in differentiating it.”
Mnuchin said implementing the new version of banking regulation was “a complicated question,” and offered to meet with Warren to discuss her ideas.
He also apologized for not knowing that Warren has since 2013 introduced a bill called the “21st Century Glass-Steagall Act.” The bill would reinstate some rules to prevent banks from engaging in risky behavior and make large “too big to fail” banks “smaller and safer” to prevent the need for a government bailout.