For a brief moment, Wall Street stopped on Monday, as if time was suspended in an alternative reality.
President Trump, for the first time as resident of the White House, said aloud that he was considering breaking up the nation's biggest banks. Of course, he had said it on the campaign trail, but this seemed different.
"I'm looking at that right now," Mr. Trump told Bloomberg News during an interview in the Oval Office. "There's some people that want to go back to the old system, right? So we're going to look at that."
The headline ricocheted around the email boxes of senior bank executives across the industry. At the Milken Global Conference in Los Angeles, where Treasury Secretary Steven Mnuchin had just finished speaking — and didn't mention breaking up the banks — the hallways quickly buzzed about the comment, according to participants, as their phones lit up. Shares of bank stocks dived lower within seconds of the headline, only to recover quickly.
Mr. Trump's comments shouldn't come as a surprise: His chief economic adviser, Gary D. Cohn — formerly president of Goldman Sachs — has been not-so-quietly trying to socialize the idea of bringing back the Glass-Steagall Act, the Depression-era law that was enacted to prevent investment and commercial banks from combining. The law was repealed in 1999, helping to bring about the supersized banking giants that dominate the market today.
Before Monday's musings, Mr. Trump's thoughts on the matter had felt like a theoretical exercise, those who have met with him say.
What would be surprising, however, is if Mr. Trump made it a reality. It would be one thing for him to "do a big number" on Dodd-Frank, the 2010 law that imposed stricter regulations on banks in the aftermath of the financial crisis — he has repeatedly stated that he wants to pare it back, repealing parts of the law. But it would be a much more seismic shift to bring back Glass-Steagall, which would be the equivalent of doing "a big number" on the banks themselves. The biggest names in banking would presumably face the choice of having to shed either their commercial banking arm or their investment banking division.
When Mr. Trump met with business executives in February at the White House, he turned to Jamie Dimon, chief executive of JPMorgan Chase, an unabashed defender of big banks, for advice. JPMorgan Chase would not exist in its current form were it not for the 1999 repeal of Glass-Steagall.
"There's nobody better to tell me about Dodd-Frank than Jamie, so you're going to tell me about it," Mr. Trump said at the time, to the consternation of proponents of more banking regulation.
Viewed through the prism of goosing the economy and creating jobs — as Mr. Trump has pledged his efforts should be viewed — it's hard to see how breaking up the biggest banks would help, especially in the short term. Indeed, it would most likely have the opposite effect.
Mr. Trump's chief complaint about Wall Street is that he doesn't think lenders are extending enough money. "I have so many people, friends of mine, that had nice businesses. They can't borrow money," he famously said. "They just can't get any money because the banks just won't let them borrow, because of the rules and regulations in Dodd-Frank."
Given that commercial lending is at a record, according to the Federal Reserve, that's a hard statement to square.
But let's be generous and assume for a moment that he is right. What is undoubtedly true is that big banks would probably be even more conservative with their loan books during whatever transition would be required to comply with a new version of Glass-Steagall. Such a law would inject as much uncertainty into the economy as Dodd-Frank did initially, when banks were sorting out how they would comply. The process did throw some big banks' lending into a state of paralysis.
And while proponents of ending too-big-to-fail love to point to the repeal of Glass-Steagall as the culprit, by now that meme should have resolved itself.
"I don't think that Glass-Steagall was a cause of the crisis," Ben Bernanke, the former Federal Reserve chairman, who has no horse in this race, told me matter-of-factly.
Indeed, he said, he would be worried if the law were brought back, because it would hamstring the government if it ever needed to intervene in a crisis similar to what happened in 2008. "If Glass-Steagall had been in effect, we couldn't have had some of the failing firms taken over," Mr. Bernanke said. "JPMorgan took over Bear Stearns, and so on."
On the other hand, Neel Kashkari, the president of the Minneapolis Federal Reserve and a former Treasury staff member who oversaw the bailouts of the banks, has been on a campaign to break up the biggest banks, concerned that they still pose too much of a risk to taxpayers if they were to fail.
Mr. Trump's comments came on the same day that he and his team spoke with about 100 community bankers led by Cam Fine, president and chief executive of the Independent Community Bankers of America. One issue they discussed was the idea of a two-tiered system of regulations, one for big banks and another for community banks. Whether that construct is now being interpreted as a new version of Glass-Steagall or a breakup of the banks remains an open question.
But let's be clear: If Mr. Trump were to try to bring back what he described on the campaign trail as Glass-Steagall, it wouldn't be to prevent the next crisis. He would have to be convinced that bringing back the law would stoke the economy. And that's an even scarier prospect, because it means firms like Morgan Stanley, Goldman Sachs and Bank of America, which have been forced to reduce the risk they take, would ultimately be less regulated.
There are a lot of good reasons to reform Dodd-Frank. And there are lots of good ways to make regulations less onerous to the nation's smaller banks, which complain they are drowning in legal and compliance bills; giving them some relief could indeed open the loan spigot even more. But both of those measures would be very different from bringing back Glass-Steagall.
Whether Mr. Trump's talk translates into action on this front remains to be seen. The prevailing view seems to be: "Be prepared for more headline risk for big banks as lawmakers keep piling on the anti-Wall Street rhetoric — most of it will be substantively meaningless," according to Ian Katz of Capital Alpha, whose comments were highlighted by Ben White of Politico.
Of course, with President Trump, the prevailing view could change in an instant.