On Monday, in what was probably meant to be a throw-away comment, Donald Trump suggested he’s considering breaking up the big banks.
For more than a few algos, that was a good reason to sell.
And then a few minutes later, everyone realized that, to quote the New York Times‘ Binyamin Appelbaum:
When the president says he’s thinking about something he means at that moment and not necessarily at any subsequent moment.
It’s like a play-by-play feed from the president’s cockpit. “I am thinking about breaking up the banks.” “Now I am thinking about lunch.”
Be that as it may, “Glass-Steagall” is back on every traders’ radar (and probably back in the minds of a lot of lobbyists) on Tuesday.
Below, find a quick rundown of analyst opinions on the subject.
Chances are slim Congress would go for a revived Glass-Steagall Act, even though Donald Trump said he’s actively considering breaking up giant Wall Street banks, analysts say. Still, it’s a mistake for investors to dismiss the threat, KBW says.
- KBW Bank Index (BKX) falls as much as 0.4%, led by Citizens Financial, JPMorgan, BofA, People’s United, SVB Financial, SunTrust
KBW (Brian Gardner)
- Trump remarks shouldn’t be surprising since reinstating Glass- Steagall was included in Republican Party’s platform last summer, has been mentioned by at least 3 administration officials (Steven Mnuchin, Gary Cohn, Sean Spicer)
- Sees reinstatement as mostly a headline risk for banks amid some bipartisan opposition, though it’s a mistake for investors to completely dismiss it
- Sees 2 main options if administration pushes for it: Banking regulators having authority to force banks to separate some non-bank activities into subsidiaries (similar to FDIC Vice Chairman Thomas Hoenig proposal); banks being able to keep investment/commercial banking activities in same holding company, but facing higher compliance costs, capital requirements for nonbank activities
COMPASS POINT (Isaac Boltansky)
- Odds of Glass-Steagall 2.0 being enacted in this Congress remain low, but headline risk for money-center banks will persist as populist power of the issue is simply too great; some House Democrats may push for Glass-Steagall language during today’s mark-up of the Financial Choice Act
- Certain issues (big bank bashing, drug prices, student loans) may unite far left and far right, which may create path to passage, though policymakers often lose consensus when forced to consider specifics
- White House’s conceptual support for Glass-Steagall construct may be intended to help grease the skids in broader regulatory relief conversation
CAPITAL ALPHA (Ian Katz)
- Doesn’t think Trump moved the needle vs what was already known about administration’s views; while officials’ comments point to interest in some kind of separation of banking activities, the threat doesn’t seem near- or even medium-term
- Notes Congress, regulators matter more than White House; there’s no administration proposal, Trump has many bigger priorities (national security, health care, tax reform, infrastructure, Dodd-Frank reform); there’s little appetite in Congress for new Glass-Steagall (isn’t in Hensarling’s Choice Act)
- Even so, regulators, (particularly Fed), can set rules to effectively force big banks to downsize, and Trump will nominate his people to the Fed; watching how new supervision czar, Janet Yellen’s replacement feel about Glass-Steagall
FBR (Edward Mills)
- Gives extremely low odds to Congress approving legislation; notes there’s currently no formal proposal from Trump team
- Wonders if could be included as a sweetener in legislation needing Democratic support, like an infrastructure bill