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Could the Glass-Steagall Act — the Depression-era legislation that forced the separation of investment banking from commercial banking, among other things — be coming back?
In an extremely odd political dovetail, both the Democratic and the Republican platforms include planks that call for the restoration of the landmark 1933 law. Glass-Steagall aimed to protect the common folk who deposited money in their banks for safekeeping, and ordered that those banks decouple themselves from the business of placing the type of speculative stock market bets that caused the great crash of 1929.
For decades, that law was a bedrock principle on Wall Street, where the peanut butter of lending and deposit-taking never mixed (legally) with the chocolate of playing the market. That bedrock was smashed in 1999, however, when the Gramm-Leach-Bliley Act undid much of Glass-Steagall, liberating banks like Citigroup and others to form what they called "financial supermarkets," all-in-one financial services shops.
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Fast-forward to 2016: Somehow, it appears that Bernie Sanders, who is said to have pressed for the inclusion of the Glass-Steagall plank in the Democratic Party platform, and Donald J. Trump, who also pushed for the agenda item on the Republican side, do agree on something.
The potential change hasn't yet become a major talking point for Hillary Clinton or Mr. Trump — and there is a chance it will never be one — but the language that was inserted into both parties' formal platforms is raising eyebrows in Washington and the financial world.
"In terms of political significance, the presence of the same plank in both party platforms means that the one thing we can bet on seeing in 2017 is a tougher attitude toward the financial industry," Elaine C. Kamarck, a senior fellow at the Brookings Institution and a Democratic superdelegate, wrote in an analysis.
"To date," she continued, "there hasn't been much interest in this in Congress. But if the establishment heard one thing loud and clear in the 2016 primaries, it was that millions of Americans think that they were the victims of Wall Street and that the next president had better pay attention."
That may be the case, but the idea of reinstating Glass-Steagall seems to sit directly behind potentially unmovable obstacles.
On the Democratic side, Mrs. Clinton — whose husband signed the Gramm-Leach-Bliley Act into law — has publicly derided the reintroduction of Glass-Steagall, suggesting that efforts to bring it back are misguided.
"I'm going to go after what I think are the real problems, not the problems of the past, the problems of today, because what I'm interested in is stopping something like this from happening again," Mrs. Clinton said on the stump last year in Iowa, talking about the 2008 financial crisis.
"I've studied this real closely," she continued, "and what I am proposing is we go after the risk, and if they are too big to manage, that is a risk and they should not continue. If they are so big that they are causing disruptions on the marketplace, that's a risk."
The problem with just reinstating Glass-Steagall, she said, is that "you don't go after all these other institutions in what is called the shadow banking system, hedge funds and other financial entities that have too much power in our economy."
Mrs. Clinton's position has angered some Democrats on the left, like Mr. Sanders. They have made the case that she is too close to Wall Street banks.
Perhaps more interesting is how and why Mr. Trump, almost unilaterally, decided to add the return to Glass-Steagall to the Republican platform. For one thing, it is usually the Republicans who are against adding regulation.
For another, Mr. Trump has declared that he plans to repeal much of the Dodd-Frank Act, which was passed in 2010 as something of a modern-day version of Glass-Steagall. Dodd-Frank, a response to the Wall Street collapse of 2008-9, both bailed out the financial services industry and imposed new regulatory restrictions on it.
The idea of wiping away Dodd-Frank while restoring Glass-Steagall seems like something of a contradiction. For those trying to square the circle, some Republicans have suggested that bringing back Glass-Steagall is more free-market than the various regulations embedded in Dodd-Frank.
David Stockman, a former director of the Office of Management and Budget in the Reagan administration, has been quietly pushing for Mr. Trump to own the issue of Glass-Steagall, arguing its political advantages. "By embracing Super Glass-Steagall, Donald Trump could instantly leap to the left of Hillary on the cutting issue of Wall Street and the one percenters," he wrote in June on his website. "Super Glass-Steagall would consign today's handful of giant financial services conglomerates to the arena of pure free enterprise, where they would live or die at the hands of competition and their value to customers."
It's worth noting there is little love lost between the nation's biggest banks and Mr. Trump: Most of the country's biggest banks haven't lent money to him in years.
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."