Treasury Secretary Steven Mnuchin’s assertion that the administration doesn’t support separating commercial banking from investment banking, as was the case under the Depression-era Glass-Steagall Act, almost left Sen. Elizabeth Warren speechless Thursday.
“This is just bizarre,” Warren, a Massachusetts Democrat, said to Mnuchin during his testimony before the Senate Banking Committee after what she called his “complete reversal” on Glass-Steagall, whose last vestiges were repealed in 1999.
The Republican Party’s 2016 platform included a call for a “21st century Glass-Steagall.” During the campaign, President Donald Trump also used that phrase in describing his views on banking, and Mnuchin had expressed support for a “21st century” version as well. But Mnuchin took a different position Thursday.
“We do not support the separation of banks from investment banks,” he said. “We think that would be a big mistake.”
Mnuchin suggested a misunderstanding may have arisen over his support for a “21st Century Glass-Steagall.” He said he didn’t realize that was the title of a bill that Warren and other senators have introduced this year. Warren noted that the title has been used for the last three years on earlier iterations of the bill.
“We never said we were in favor of Glass-Steagall, we said we were in favor of a 21st century Glass-Steagall,” Mnuchin told Warren. Mnuchin resisted explaining the position during questioning, but said he would be happy to sit down with Warren and describe it to her at a later date.
Asked about Glass-Steagall after the hearing, Mnuchin said only, “We’ll spend more time talking about that.”
“The fundamental part of Glass-Steagall was separation [of commercial and investment banking functions], Mnuchin said. “The integration of commercial banking and investment banks has gone on for a long period of time,” he said, predicting there would be “enormous” economic impact, particularly on bank liquidity, “if we did go back to a full separation.”
Advocates of reintroducing Glass-Steagall for federally insured commercial banks say it would discourage risky behavior by banks. But critics of the idea note that the big failures during the financial crisis involved investment banks and commercial banks, but not financial institutions that did both.
Warren told reporters that she was “stunned” at the administration’s reversal. She told CQ that she rejected Mnuchin’s suggestion that there was a misunderstanding related to the title of her bill.
Glass-Steagall was instituted during the Depression so that peoples’ banking and checking accounts would be separated from riskier brokerage house investing, she said.
“That’s what it means, that’s what it meant in the 1930s, that’s what it meant all the way in between, that’s what it meant when it was repealed in 1999,” she said.