President Donald Trump said he is actively considering breaking up giant Wall Street banks, giving a push to efforts to revive a Depression-era law separating consumer lending and investment banking.
“I’m looking at that right now,” Trump said Monday in an interview with Bloomberg News 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.”
During the presidential campaign, Trump called for a “21st century” version of the 1933 Glass-Steagall law that required the separation of consumer lending and investment banking.
The 2016 Republican party platform also backed restoring the legal barrier, which was repealed in 1999 under a financial deregulation signed by then-President Bill Clinton.
A handful of lawmakers blame the repeal for contributing to the 2008 financial crisis, an argument that Wall Street flatly rejects.
Trump officials, including Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn, have offered support for bringing back some version of Glass-Steagall, though they’ve offered scant details on what an updated approach might look like.
Both Mnuchin and Cohn are former bankers who worked for Goldman Sachs Group Inc.
What Was The Glass-Steagall Act?
In 1933, in the wake of the 1929 stock market crash and during a nationwide commercial bank failure and the Great Depression, two members of Congress put their names on what is known today as the Glass-Steagall Act (GSA).
This act separated investment and commercial banking activities.
At the time, “improper banking activity,” or what was considered overzealous commercial bank involvement in stock market investment, was deemed the main culprit of the financial crash.
According to that reasoning, commercial banks took on too much risk with depositors’ money.
Additional and sometimes non-related explanations for the Great Depression evolved over the years, and many questioned whether the GSA hindered the establishment of financial services firms that can equally compete against each other.
We will take a look at why the GSA was established and what led to its final repeal in 1999.