Brocker.Org: MNUCHIN: The US may need ‘a 21st century version’ of Glass-Steagall

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President
Franklin Roosevelt at the White House, Washington on August 23,
1935 as he signed the Glass-Steagall Banking
Bill.

AP

Treasury Secretary-designate Steven Mnuchin touted the
revitalization, with tweaks, of a decades-old regulation on
banks repealed nearly twenty years ago during his confirmation
hearing on Thursday. 

Last July, Republican National Convention delegates approved a
platform that supported reinstating the
Glass-Steagall Act
. It was passed in 1933 and required banks
to separate commercial deposit banking from investment
banking.

Democratic Senator Maria Cantwell asked Mnuchin whether he
supported a return to the act. 

“I don’t support going back to Glass-Steagall as is,” Mnuchin
told the Senate Finance Committee. “When we talked about policy
with the president-elect, our view is we need a 21st century
version.”

The act was repealed in 1999, enabling the
rise of mega banks
 like Citigroup and JP
Morgan that serve both small checking accounts and
million-dollar investment portfolios. Some economists have argued
that the act repealing Glass-Steagall nurtured some of the
risky behavior among banks that led to the financial crisis.

Mnuchin said the problem with regulation is a lack of clear
understanding of what is proper and improper. He said he
supported the Volcker Rule, which was enacted with the Dodd-Frank
Act after the 2008 financial crisis and limited how much
speculative investing banks can do. 

“I support the Volcker rule, but there needs to be proper
definitions around the Volcker rule so that banks can understand
exactly what they can do and what they can’t do, and that they
can provide the necessary function of liquidity in customer
markets,” Mnuchin said. 

He cited a paper from Federal Reserve staff released in December
that found that the Volcker rule had a negative effect on
corporate-bond liquidity, or the ease with which buyers and
sellers can find each other. 

“Separating out banks and investment banks right now under
Glass-Steagall would have very big implications to the liquidity
and the capital markets and banks being able to perform necessary
lending,” Mnuchin added. 

The research firm
Compass Point said in December
that the Trump administration
could use the paper’s findings as an argument to ease
regulation on Wall Street.

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