The Banking Act of 1933, commonly referred to as the Glass-Steagall Act, ushered in various reforms, to assist the Nation’s Recovery from The Great Depression. “Glass”, which was part of (new) President Franklin D. Roosevelt’s “New Deal”, broke-up the Banking Industry, and created Federal Deposit Insurance. It was made permanent in 1945.
Prior to “Glass”, companies could engage in both commercial and investment banking, which meant that risky securities actions might jeopardize clients’ deposits, and there wasn’t any deposit insurance either. In the mid-1980s, however, many of the banking restrictions were lifted, and mostly larger banks transformed themselves into Financial Services Supermarkets. Also, making “banking” even more precarious: the number of products and financial institutions, has frown considerably since the 1930s.
In October of 2008, President George W. Bush bestowed many billions of dollars on the largest banks, in order to enhance liquidity within the banking system. Unfortunately, that action was interpreted, by many, as conveying an explicit Federal Government Guarantee of what became to be called the “Too Big to Fail” banks. That general assumption merely led to an even higher concentration of financial business, on the few, but same, largest—or Too Big to Fail Banks. Thus, the solution worsened the problem!
Following The Great Recession (4Q07-to-1Q09), President Barack Obama signed the Dodd-Frank Act into Law, in July 2010. Dodd-Frank reined-in the banks, required required high equity capital standards, and was intended to separate the investment risks from consumer deposits. The GOP, however, has sought to repeal Dodd-Frank ever since!
Treasury Secretary Steven Mnuchin, who is Donald Trump’s lead-man on banking laws, has been suggesting that he might propose a “21st century version of Glass-Steagall”. Donald Trump has also been saying the same thing! Today, Senator Elizabeth Warren called Secretary Mnuchin to task, at a Senate Finance Committee Hearing, as linked from CNBC-TV. She noticed that he had been avoiding the question of whether, or not, the Trump Regime would break-up the banks.
Finally, Secretary Mnuchin realized that he had to answer the question, and his response was still quite convoluted: “it’s a complex issue”; “not a good thing”. and finally “NO!” He stammered when she asked him how they could be considering a “21st century version of Glass-Steagall—a law which specifically broke-up the banks—with one that would not.” Mr. Mnuchin suggested that he would bring a team from the Treasury Department to brief the Senator’s Staff.
Secretary Mnuchin seemed to be avoiding answers from most of the Senators on the Committee—especially the Democrats—as he offered to provide briefings, similar to those offered Senator Warren, to a number of other Senators. Surely, the Secretary of the Treasury should be expected to appear before the primary Senate Committee, which regulates his office—and be totally prepared! And it should be obvious to most Americans that, so soon after the 2008 Banking Crisis, that the status of the Banking Laws would be Question Number One, Two and Three!