When he was candidate Donald Trump, the GOP hopeful ran a campaign promising protections for American workers from system abuses.
So it should come as little surprise that President Trump again announced, as he did during the campaign, that he is looking at reviving a form of the Glass-Steagall Act of 1933, an act that made it illegal for banks to take customer deposits and funnel that money into high-risk investments. This was an important campaign promise for Bernie Sanders as well.
In 1999, at the behest of Democrats, and led by President Bill Clinton, the act was repealed. The repealing of the law is sometimes blamed for the financial crisis that peaked in 2008. However, in an interview in 2015, Bill Clinton said, "There's not a single, solitary example that my repealing of the Glass-Steagall act had anything to do with the financial crash of 2008."
In 2008, housing prices crashed in many areas of the country, leading to several million foreclosures. Banks had been saddled with risky investments, or bad loans. Many of those loans were to homebuilders and property developers connected to the banking system.
There is little question that risky investments with other people’s money were a factor. Those proposing bringing back the act say eliminating that risk is part of the reason why the law is needed.
In an interview on Monday, President Trump said he is actively considering breaking up the larger Wall Street banks.
"I'm looking at that right now," said Trump. "There's some people that want to go back to the old system, right? So we're going to look at that."
During the campaign, Mr. Trump said he favored a "21st Century" adaptation of Glass-Steagall. Trump officials, including Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn, have publicly supported restoring a version of the law.
The move would be bullish for small and mid-market banks that don’t operate in the volume big banks do. And, probably as no coincidence, Trump's comments came the same day he met with leaders of the Independent Community Bankers Association.
One Industry analyst, Dick Bove, doesn’t think anything is going to come of this. "I just think he had a need to communicate, to connect again with community banks and say, 'Hey guys, we're on your side. We believe in you and maybe we should break up the big Wall Street banks, but I don't expect anything to come of it."
Bank stocks had been one of the biggest winners of the Trump trade, rallying strongly after his victory in the November presidential election.
Photo Credit: Evan El-Amin / shutterstock.com