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By Jeff Bater
July 18 — Republicans and Democrats are calling for resurrection of a Depression-era wall between commercial and investment banking, but there is disagreement whether the political rhetoric will lead to passage of a new Glass-Steagall law.
Paul Manafort, the campaign manager for presumptive Republican presidential nominee Donald Trump, said the party's convention platform calls for the reintroduction of Glass-Steagall “to create barriers between what the big banks can do — and try to avoid some of the crises that led to 2008.”
“We are supporting the small banks and Main Street. And we talk about the legislation that affects, you know, some of the mistakes made in repeal of Glass-Steagall and some of the mistakes made in imposing Dodd-Frank. The platform reflects those things,” Trump's campaign manager said during a July 18 news conference in Cleveland.
The Republican platform was passed July 18, the first day of the national convention. “We support reinstating the Glass-Steagall Act of 1933 which prohibits commercial banks from engaging in high-risk investment,” the language said.
A draft Democratic Party platform released July 1 said the Democrats support “a variety of ways” to stop banks from posing an undue risk to the U.S. financial system, including “an updated and modernized version of Glass-Steagall” and “breaking up too-big-to-fail financial institutions” (128 BBD, 7/5/16).
The Banking Act of 1933, also known as the Glass-Steagall Act, barred affiliations between banks and securities firms. But the Gramm-Leach-Bliley Act of 1999 repealed those restrictions and allowed broad new business combinations among financial firms. In recent years, a handful of Democratic and Republican lawmakers have found common ground on reviving Glass-Steagall.
Sens. Elizabeth Warren (D-Mass.) and John McCain (R-Ariz.) have sponsored the 21st Century Glass-Steagall Act (S. 1709), a bill that would prevent a bank from being affiliated with a securities firm, insurer or swaps dealer. McCain is the only Republican among the bill's current 10 supporters.
“The effort to bring back the Depression-era law that split commercial and investment banking faces long odds, as big banks have the support of many lawmakers in resisting return of Glass-Steagall, which was repealed in 1999,” Bloomberg Intelligence analyst Nathan Dean wrote in a July 18 research note.
Isaac Boltansky, an analyst at Compass Point Research & Trading, said the inclusion of Glass-Steagall language in the Republican platform is aimed at presumptive Democratic presidential nominee Hillary Clinton. Her campaign has not supported reinstatement of the law.
“In terms of politics, its inclusion highlights how uniquely qualified Trump is to challenge Clinton as she will now have to fend off an attack from her ideological left,” Boltansky wrote in July 18 research note. “In terms of policy, while lawmakers remain unlikely to reenact the Glass-Steagall Act, we believe the big bank bashing from both parties will eventually lead to targeted policies aimed at lessening the relative regulatory burden for regional and community banks.”
Republican platform language on Glass-Steagall should not be written off as political rhetoric, said Keefe, Bruyette & Woods analyst Brian Gardner. The law has a greater chance of being reinstated than many realize, especially if Congress also looks at changes to the 2010 Dodd-Frank Act, he said.
“We think this is the case regardless of who wins the presidential election,” Gardner wrote. “We think if Congress wants to make changes to Dodd-Frank next year, Sen. Elizabeth Warren and her allies will want to extract some price for allowing such legislation to pass. If the price is the reinstatement of Glass-Steagall we think some Republicans, who might not otherwise support Glass-Steagall, might support its reinstatement if that means regulatory relief for community banks.”
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