Debate on Glass-Steagall, Bank Separation Won’t Go Away

Just days after the White House spokesman raised the issue of re-establishing the Glass-Steagall Act, the Vice-Chair of the Federal Deposit Insurance Corporation Thomas Hoenig spoke of bank separation, setting off a new wave of panic among the mega-banks.

First, at a March 9 briefing by press spokesman Sean Spicer, when asked “Are you still committed to restoring Glass Steagall?” replied “yes”. Before the November election, Trump himself had stated that restoring Glass-Steagall was necessary to avoid a new 2008-style crash, and to restore fairness and competitiveness for small banks.

Then, in a speech to the Institute of International Bankers in Washington, D.C.on March 13, Thomas Hoenig, who is rumored to be a front-runner for the position of vice chair for supervision at the Federal Reserve, addressed the problem of the “too-big-to-fail” banks. The banking reform pushed by President Obama, known as the Dodd-Frank bill, in Hoenig’s view, has not worked. Its “many and complicated regulations are burdensome for all banks, but especially for smaller banks. The legislation also has served to enshrine too-big-to-fail for the largest, most complex universal banks, providing them with a powerful competitive advantage.”

His proposal, while not explicitly calling for Glass-Steagall, is clearly supportive of strict bank separation, and for no bailout of speculative activity. That was more than enough to worry the Wall Street Journal and the Financial Times, with the latter writing it is “likely to spark alarm on Wall Street.”

As Democrats gear up to fight Trump’s proposed budget, in a repeat of the partisan wrangling which has stultified any serious discussion of how to revive the U.S. economy for more than two decades, Glass-Steagall represents a key potential flanking action. The bill introduced in the House of Representatives now has nearly 40 co-sponsors, and its passage together with the issuance of public credit, would give the Trump administration added impetus to revive U.S. manufacturing, with an emphasis on scientifically-vectored programs for modernized infrastructure, and space exploration.