Eugene Grygo, Chief Content Editor, FTF News
The major U.S. political party conventions to nominate Donald Trump and Hillary Clinton for president have been nothing if not colorful. Yet hidden among the balloons and confetti is the news that both political parties have more or less endorsed a return to the Glass-Steagall provision separating commercial and investment banking.
Our first stop is the 2016 Republican Party Platform, which was unveiled in time for last week’s GOP convention in lovely Cleveland.
Almost as a prelude, the Republicans finally sort-of issued a response to the much-maligned Dodd-Frank Act in June when the Republican chairman of the House Financial Services Committee, Texas Congressman Jeb Hensarling, began promoting a plan to repeal the Dodd-Frank Act with the Financial CHOICE Act. In an important distinction, the Republicans want to challenge and simplify the capital requirement levels of Dodd-Frank and Basel III. They also would like to wipe out Dodd-Frank and start over with Hensarling’s proposal (and possibly other related initiatives).
But, hidden in the GOP platform of King Trump, under the heading of “Regulation: The Quiet Tyranny,” is the following: “The Dodd-Frank law, the Democrats’ legislative Godzilla, is crushing small and community banks and other lenders. … We support reinstating the Glass-Steagall Act of 1933 which prohibits commercial banks from engaging in high-risk investment.”
What? When did this happen? I scoured the report and could not find any details on how Glass-Steagall will be brought back. I guess like Trump the GOP prefers mystery over concrete proposals. The GOP may be throwing a bone to the anti-Hillary supporters of Vermont Senator Bernie Sanders.
Yet, I intrepidly stumbled upon a reference about The Federal Reserve in the GOP platform, and a call for transparency!
“Because the Federal Reserve’s monetary policy decisions affect job creation, upward mobility for workers, and equitable prosperity, they should be transparent. Similarly, the Federal Reserve’s important role as a lender of last resort should also be carried out in a more transparent manner,” according to the platform. “The Republican Party will advance legislation that brings transparency and accountability to the Federal Reserve, the Federal Open Market Committee, and the Federal Reserve’s dealing with foreign banks.”
The GOP endorses an annual audit of the Federal Reserve’s activities.
“Such an audit would need to be carefully implemented so that the Federal Reserve remains insulated from political pressures and its decisions are based on sound economic principles and sound money rather than political pressures for easy money and loose credit,” according to the platform. “Determined to crush the double-digit inflation that was part of the Carter Administration’s economic legacy, President Reagan, shortly after his inauguration, established a commission to consider the feasibility of a metallic basis for U.S. currency. In 2012, facing the task of cleaning up the wreckage of the current Administration’s policies, we proposed a similar commission to investigate ways to set a fixed value for the dollar.”
Does that mean a return to the Gold standard or moving the Fed’s headquarters to a new Trump Tower with a “metallic” iron foundation?
“With Republican leadership, the House of Representatives has passed legislation to set up just such a commission. We recommend its enactment by the full Congress and the commission’s careful consideration of ways to secure the integrity of our currency,” according to the platform. Here is a shortened link to the entire document: http://bit.ly/2av4omt
Well, the GOP is full of surprises. On to the Democrats who are still fighting/meeting in steamy Philadelphia.
As one might expect, the 2016 Democratic Party Platform, dated July 21, 2016 in case they change their minds, offers a lot more verbiage on the subject of financial services reform. (Maybe Goldman Sachs helped them write it.)
In the “Reining in Wall Street and Fixing our Financial System” section, Democrats have made clear that they will “support … an updated and modernized version of Glass-Steagall as well as breaking up too-big-to-fail financial institutions that pose a systemic risk to the stability of our economy.” They will also fight off attempts to dump Dodd-Frank and the Consumer Financial Protection Bureau (CFPB).
Again, intrepidly I cut through the weeds to provide the following other highlights:
- “We need to prohibit Wall Street from picking and choosing which credit agency will rate its products as well as from imposing excessive fees on consumers.”
- “Democrats … support extending the statute of limitations for prosecuting major financial fraud, and providing the Department of Justice, the Securities and Exchange Commission, and the Commodity Futures Trading Commission more resources to prosecute wrongdoing.”
- “We support a financial transactions tax on Wall Street to curb excessive speculation and high-frequency trading, which has threatened financial markets. We acknowledge that there is room within our party for a diversity of views on a broader financial transactions tax.”
- “We will crack down on the revolving door between the private sector — particularly Wall Street — and the federal government. We will ban golden parachutes for those taking government jobs. We will limit conflicts of interest by requiring bank and corporate regulators to recuse themselves from official work on particular matters that would directly benefit their former employers. And we will bar financial service regulators from lobbying their former colleagues for at least two years.”
- “We will protect and defend the Federal Reserve’s independence to carry out the dual mandate assigned to it by Congress — for both full employment and low inflation — against threats from new legislation. We will also reform the Federal Reserve to make it more representative of America as a whole, and we will fight to enhance its independence by ensuring that executives of financial institutions are not allowed to serve on the boards of regional Federal Reserve banks or to select members of those boards.”
The full platform from the Democrats is at: http://bit.ly/2af1oeq
So, there is tacit agreement between the major parties that some form of Glass-Steagall should be reinstated. Does this signal some bipartisan support to come after the hoopla of the election season is finally over? Who the hell knows?
Oddly enough, former Massachusetts Congressman Barney Frank (the other half of Dodd-Frank) was on the radio show, “The Brian Lehrer Show” on WNYC Wednesday morning (July 27) and outlined what might be in the next phase of financial reforms for Wall Street.
Citing Dodd-Frank’s frontal attack on the indebtedness among firms that caused the Great Recession, Frank says that more work is needed in this area because Wall Street has already begun maneuvering around the new regulations.
Whatever happens with the “21st Century” version of Glass-Steagall, it’s clear that some firms are too complex and too broad for one regulator to oversee them. “Wells Fargo is different from BofA, which is different from JPMorganChase,” Frank argues.
One scenario is to have authorities and Congress review the results of the living will and stress test examinations and then decide if these large and complex firms need to be modified, perhaps even have parts split off to boost the bottom line and thus their chances for survival, Frank says.
Of course, financial services reform may get lost in the shuffle regardless of who takes the White House because other public concerns may be more pressing. However, refining Dodd-Frank and Glass-Steagall is not a dead issue, which is a ray of hope amid the horrors of this presidential election process.
Need a Reprint?
