One Thing Both Parties Want: To Break Up the Banks Again
This column has spilled a lot of ink on the topic of Glass-Steagall over the years, including an admission from Elizabeth Warren that reinstating the law would not have prevented a crisis in 2008. Whether reinstating the law is good idea or not, the short-term implications are decidedly negative: It would most likely mean a loss of jobs as part of a slowdown in lending from the biggest banks.
There is a reasonable argument to make that it would also put the United States banking industry at a competitive disadvantage relative to international peers, some of which face fewer restrictions. Maybe that’s all a fair trade-off for a sounder system, but the implications need to be understood on all sides. If the goal is to jump-start the United States economy and create more jobs, reinstating Glass-Steagall will most likely hinder, not help.
So what’s the chance that the law actually comes back?
Very small. But it may have an impact that has so far been largely ignored: “While lawmakers remain unlikely to re-enact the Glass-Steagall Act, we believe the big-bank bashing from both parties will eventually lead to targeted policies aimed at lessening the relative regulatory burden for regional and community banks,” Isaac Boltansky, an analyst at Compass Point Research & Trading, wrote in a note to investors.
In addition, he suggested, “Trump’s actions will likely force Clinton to compensate by reiterating and expanding her calls for increased scrutiny of the shadow banking system, which could pose additional headline risk for asset managers, global insurers and nonbank lenders.”
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