Treasury Secretary Steven Mnuchin said breaking up the biggest banks would be a “huge mistake,” easing concerns that the Trump administration plans a major revamp of Wall Street.
“We do not support a separation of banks and investment banks,” Mnuchin said at a Senate Banking Committee hearing. “That would have a very significant” impact on financial markets and the economy, he added.
The Treasury chief’s remarks appear to put to rest a question that has been roiling the industry for months. Some administration officials have suggested they were in favor of Congress passing an updated version of the Depression era Glass-Steagall law that split commercial and investment banking, though they have been vague about what that actually meant. The law was repealed in 1999.
While reviving Glass-Steagall would be a drastic step, lawmakers on both sides of the aisle have argued it might be the best way to prevent banks from becoming so large that they endanger the financial system. The Republican party supported reinstating the law in the platform they issued in July. One of Wall Street’s loudest critics, Massachusetts Democratic Senator Elizabeth Warren, has also endorsed the move.
In a dramatic exchange at Thursday’s hearing, Warren called Mnuchin’s comments “bizarre” and a contradiction with previous statements.
“This is like something straight out of George Orwell,” Warren said about the apparent flip-flop.
Warren then asked Mnuchin why he has called for a “21st Century” version of the law. He didn’t offer details beyond saying it’s a “complicated question.”
Mnuchin also noted that the administration does support some parts of Glass-Steagall. But he said dismantling banks would sap market liquidity and could pose other economic problems, as well.
“We never said before that we supported a full separation,” Mnuchin said, rejecting the claim that this marked a policy reversal. He also apologized for the confusion that the 21st Century phrase, often bandied about by Trump and his aides, happens to match the title of the bill pushed for years by Warren and Republican Senator John McCain. Their legislation is called the “21st Century Glass-Steagall Act.”
“We never said we were in favor of Glass-Steagall; we said we were in favor of a 21st Century Glass-Steagall,” Mnuchin said. “It couldn’t be clearer.”
Warren, however, disagreed and pressed Mnuchin for more details. The Treasury secretary responded that he would be willing to meet one-on-one to discuss the issue further.
President Donald Trump himself raised the prospect of breaking up banks, telling Bloomberg News earlier this month that his administration was reviewing whether it made sense.
“There are, you know, some people that want to go back to the old system, right?” he said. “So we’re going to look at that. We’re going to, we’re looking at it right now as we speak.”
National Economic Council Director Gary Cohn, a former top executive at Goldman Sachs Group Inc., has also spoken favorably of a new version of Glass-Steagall.
Despite the lack of specifics, all the comments have caused much consternation at the largest lenders, especially Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. The three have substantial footprints in commercial and investment banking, so their business models would be severely impacted.
Mnuchin, who brought his actress fiancee to the hearing, also told the Banking Committee that the Treasury is close to finishing part of its review of financial regulations, as ordered by Trump in February. He said an initial report on banking rules will be released in the coming weeks.Report Typo/Error