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White House Economic Advisor Backs New ‘Glass-Steagall’ Type Banking Restrictions

Mon, Apr 10, 2017

Columbia, Maryland

Last week, in a meeting with members of Congress, White House economic adviser Gary Cohn said he supports a policy that could reshape Wall Street’s biggest firms by separating their consumer-lending businesses from their investment banks.  Cohn, is an ex-Goldman Sachs executive who is now working in the Trump Administration, said he favors banking going back to how it was when firms like Goldman focused on trading and underwriting securities, and companies such as Citigroup primarily issued loans.

Cohn’s comments echo what President Trump and some R lawmakers have previously said about wanting to bring back some form of the ‘Glass-Steagall Act,’ a Depression-era law which kept a ‘firewall’ between bricks-and-mortar lending from investment banking from the time of Great Depression through the law’s repeal in 1999 under President Clinton.

Economists dispute what if any effect these changes had on the market leading into the financial crisis of 2008. What is not in dispute is that after repeal, banks such as Citigroup, Bank of America and JPMorgan Chase acquired smaller rivals and pushed into all sorts of new businesses, becoming one-stop-shopping financial behemoths.

White House officials haven’t said what an updated version of ‘Glass-Steagall’ might look like. Cohn’s remarks were prompted by a question from Sen. Elizabeth Warren (D-MA), a member of the Senate Banking Committee and one of the banking industry’s biggest critics.

Both political parties -- and many voters -- still resent that taxpayers had to rescue the industry with a $700 billion bailout during the 2008 crisis. Republicans included a return of ‘Glass-Steagall’ in the party platform approved in July 2016 during their national convention. Sen. Warren has proposed legislation with Sen. John McCain (R-AZ) called the “21st Century Glass-Steagall Act.”