Treasury Secretary Steven Mnuchin just said the words that will lead to a sigh of relief on Wall Street.
During his testimony to the Senate banking committee on Thursday, the Treasury secretary said the Trump administration did not support the separation of investment banks and commercial banks.
“We think that would have a very significant problem on financial markets, on the economy, on liquidity,” he said. “We do think there are potential things we could look at around regulation, but we do not support separation of banks and investment banks.”
Sen. Elizabeth Warren quickly pointed out that this conflicted with previous statements by President Donald Trump, Mnuchin, and economic adviser Gary Cohn, who all said the White House was considering a new form of Glass-Steagall, the law that once mandated the separation.
Trump told Bloomberg in an interview on May 1 that he was “looking at that right now” when asked about breaking up the big banks, and the idea was in the Republican Party’s platform.
Glass-Steagall was passed during the Great Depression to keep the kind of risk Wall Street firms take with trading out of the commercial banking system. Its repeal in 1999 led to a wave of combinations and is considered a factor in the 2008 financial crisis.
Warren took Mnuchin to task on this apparent reversal, saying the original Glass-Steagall was designed to separate commercial and investment banks.
“There are aspects of Glass-Steagall that you support, but not breaking up the banks and separating commercial banking from investment banking?” Warren said. “What do you think Glass-Steagall was if that’s not right at the heart of it?”
Mnuchin said Trump and the administration hadn’t changed their position.
“We, during the campaign … specifically came out and said we do support a 21st-century Glass-Steagall,” Mnuchin said. “That means there are aspects of it that we think may make sense, but we never said before that supported a full separation of banks and investment banks.”
Warren said Mnuchin’s support for Glass-Steagall and rejection of the main aspect of the original law made little sense.
“Let me get this straight: You’re saying you are in favor of Glass-Steagall, which breaks apart the two arms of banking, except you don’t want to break apart the two parts of banking. This is like something out of George Orwell,” Warren said, alluding to the concept of doublespeak from Orwell’s dystopian novel, “1984.”
Mnuchin reiterated that the administration favored a “21st-century Glass-Steagall,” not the original Glass-Steagall.
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