Will President Trump Revive Glass-Steagall?

Following recent drama in the Senate, where Republicans invoked the "nuclear option" to advance Judge Neil Gorsuch’s nomination to the Supreme Court, fears have arisen that the days of bipartisanship in the Senate may be dead. Recent talk by Trump administration officials about the possible revival of the Glass-Steagall Act may provide an opportunity for lawmakers to restore a sense of across-the-aisle cooperation.

Gary Cohn, senior White House economic advisor and National Economic Council director, met privately Wednesday with the Senate Banking Committee. In the meeting, Bloomberg reported that Cohn expressed his support for policy that would separate consumer banking from investment banking. This separation was a key part of the Glass-Steagall Act, which was functionally repealed under then-President Bill Clinton in 1999. Some industry experts point to the neutering of Glass-Steagall as a contributing factor in bringing about the 2008 financial crisis, though others have disagreed.

Cohn’s advocacy for the revival of this classic financial regulation was surprising to some since he is a former executive with Goldman Sachs, one of the institutions that would be most affected. But the revival of Glass-Steagall made it into the Republican party platform coming out of the RNC convention in July 2016, along with a commitment to repeal the Dodd-Frank Act. Cohn’s statements are consistent with the administration’s perspective.

The Dodd-Frank Act arose after the 2008 financial crisis. It was a vastly complicated piece of legislation meant to regulate the banking industry while protecting consumers and the economy. Institution of those regulations, however, has stalled repeatedly since its approval in 2010. Given the relative simplicity of the Glass-Steagall regulations, compared with the hundreds stipulated by Dodd-Frank, reinstating the first while eliminating the second would fulfill President Donald Trump’s promises to reduce federal regulation while still fundamentally changing the current financial industry.

The revival of Glass-Steagal makes allies of Republicans and more progressive members of the Democratic party. In July 2015 Sen. Elizabeth Warren (D-MA) introduced the 21st Century Glass-Steagall Act of 2015, which proposed to reinstate the firewall between investment and lending banking. By separating the two activities, government protection through the Federal Deposit Insurance Corporation (FDIC) for risky financial ventures would be removed. This would address the issue of "too big to fail". Institutions on both sides of the equation could go under without causing such catastrophic economic fallout federal bailouts are required.

The legislation was co-sponsored by Sen. John McCain (R-AZ). At the same time, related legislation was introduced in the House, also with bipartisan support.

Despite the unusual bipartisan support for reviving an updated Glass-Steagall, the legislation has foundered in committee. But with the backing of the administration the issue may get infused with new life. And in a Senate that increasingly struggles to find common ground amidst partisan rancor, it may provide an opportunity to compromise and make constituents happy. In the new Washington the possibility is strong enough that the financial industry is taking notice.

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— Asha Sanaker

(Photo Credit: Wikipedia / Creative Commons )