President Donald Trump has said he is looking into reinstating regulations that could split banks’ consumer business from their investment operations.
Trump Considering Rules to Split Up Wall Street Banks
Speaking to Bloomberg News on Monday, US President Donald Trump said he was looking at the rules on Wall Street banks’ ownership of both consumer and investment operations.
However, Sean Spicer, White House spokesperson said no announcement was planned and that there were no further details.
Initially, shares in banks fell following Mr. Trump’s comments but later recovered.
In 1999, US banks were allowed to own investment banking operations and high street banks at the same time following a repeal of the Glass Steagall Act.
In his election campaign, Mr. Trump said he supports a modern “Glass-Steagall Act.
Speaking to Bloomberg, he said, “There are people that are looking to go back to the old system. So we are going to look at that.”
However, the chances of anything happening this year are low.
Larry McDonald, author of A Colosal Failure of Common Sense, on the collapse of the Lehman Brothers said that it makes sense to want to separate consumer deposits and risky banking operation. However, the Trump administration currently has more pressing issues to deal with, including tax reform.
Mr. McDonald added that there are significant political reasons why Mr. Trump wanted to get tougher on the banking industry.
“The average person wants to hear this and so he is going to score points with this and it may not hurt him politically because it may not get done.”
Key figures in Congress including Republican John McCain and Democrat Elizabeth Warren have supported the idea.
However, the banking industry is likely to strongly resist changes, which could make it difficult to get approval in Congress.
On Monday, the American Bankers Association said it was against the reintroduction of the Glass-Steagall Act.
In a statement, the association’s president, Rob Nichols said, “There is broad agreement that Glass-Steagall would not have prevented the housing market collapse or the crisis.”
Mr. Trump has also pledged to roll back on rules in the banking industries introduced after the financial crisis, such as the Dodd-Frank laws.
Dodd Frank was largely designed to protect operations in consumer baking from risks in investment banking.
The legislation required banks to maintain reserves at levels, which the president thinks, may be too high for smaller operations.
During his election campaign, Mr. Trump pledged a 4% growth rate a year but the economy is currently growing at a rate of 0.7%.