(Bloomberg) - Treasury Secretary Steven Mnuchin said breaking up the biggest banks would be a “huge mistake,” easing concerns that the Trump administration plans a major revamp of Wall Street.
“We do not support a separation of banks and investment banks,” Mnuchin said at a Senate Banking Committee hearing. “That would have a very significant” impact on financial markets and the economy, he added.
The Treasury chief’s remarks appear to put to rest a question that has been roiling the industry for months. Some administration officials have suggested they were in favor of Congress passing an updated version of the Depression era Glass-Steagall law that split commercial and investment banking, though they have been vague about what that actually meant.
Reviving the law is backed by some of Wall Street’s biggest critics, including Massachusetts Democratic Sen. Elizabeth Warren. In a dramatic exchange at Thursday’s hearing, she called Mnuchin’s comments “bizarre” and a contradiction with previous statements.
“This is like something straight out of George Orwell,” Warren said about the apparent flip-flop.
Warren then asked what Mnuchin meant when he called for a “21st Century” version of the law. He didn’t offer details beyond saying it’s a “complicated question.” He noted that the administration supports parts of Glass-Steagall, which Congress repealed in 1999.
“We never said before that we supported a full separation,” Mnuchin said, rejecting the claim that this marked a policy reversal. He also apologized for the confusion that the phrase, often bandied about by President Trump and his aides, happened to match the title of the bill pushed for years by Warren and Republican Sen. John McCain, the “21st Century Glass-Steagall Act.”
“We never said we were in favor of Glass-Steagall; we said we were in favor of a 21st Century Glass-Steagall,” Mnuchin said. “It couldn’t be clearer.”
President Donald Trump himself has raised the issue, telling Bloomberg News earlier this month that he was considering a breakup of the biggest banks.
“There are, you know, some people that want to go back to the old system, right?” he said. “So we’re going to look at that. We’re going to — we’re looking at it right now as we speak.”
National Economic Council Director Gary Cohn, a former top executive at Goldman Sachs Group Inc., has also expressed his support for a new version of Glass-Steagall.
Despite the lack of specifics, all the comments have caused much consternation at the largest lenders, especially Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. All three have substantial footprints in commercial and investment banking, so their business models would be severely impacted.