On the campaign trail, President-elect Donald Trump promised to run government like a business and slash "excessive regulations." Yet, he also promised to resurrect one of the biggest bank regulations in modern history: The Glass-Steagall Act of 1933.
Glass-Steagall was meant to end speculation on the part of banks by putting a firewall between deposits and stock trading. But by the Clinton administration, the overwhelming consensus on Capitol Hill was that it wasn’t necessary anymore. Much to the delight of big banks.
But then, in October, Trump said, “It’s time for a 21st century Glass-Steagall.”
Why would Trump, the arch foe of regulation, support more regulation?
One theory is that the line was little more than populist red meat for the anti-establishment masses.
“When people say that they want to reinstate Glass-Steagall, I think they’re really talking about something else. They are really talking about breaking up the big banks,” says Francis Creighton, a lobbyist at Financial Services Roundtable.
After the risky bets by big banks sparked the financial crisis, both liberals and conservatives alike wanted justice.
“He’s saying to people that are conservative that I too am worried about this problem of private profit but public risk.”
Creighton and many other establishment Republicans oppose a 21st century Glass-Steagall. To most, it’s a non-starter.
“You would cause tremendous turmoil in the financial system if you proposed to break up all the organizations that have been formed as a result of the elimination of Glass-Steagall,” says Peter Wallison, a scholar at the American Enterprise Institute and former Treasury official under Ronald Reagan.
Wallison says this has been mainstream thinking for Republicans since at least the 1980s.
This makes Trump’s Glass-Steagall riddle, not just political rhetoric, but empty political rhetoric.
Unless you consider a more radical idea put forward by Jennifer Taub, a professor of market regulation at Vermont Law School.
Trump and fellow Republicans have already said they plan to dismantle Dodd-Frank, the post-recession law that overhauled the financial system. Taub wonders, what if bringing back Glass-Steagall was really just a simple, slash-and-burn way to get rid of Dodd-Frank?
“One part of Dodd-Frank is the so-called Volcker rule. And the Volcker rule is kind of like a Glass-Steagall light. So something like the Volcker rule would no longer be necessary if we reinstated Glass-Steagall,” says Taub.
Maybe, but Creighton doesn’t expect anything radical from President-elect Trump.
“It’s a very different operation to be the president of the United States than being a candidate. And he knows that, and he’s smart enough to understand that when he speaks, the world listens.”
Creighton adds that even if Trump does have ideas — rhetorical or radical — they will likely be filtered through numerous aides and well-established congressional Republicans.
