Even in today’s bitterly divided political climate, this year’s candidates for president represent a razor-sharp contrast. That goes for matters of substance, not just style. On issues ranging from immigration to foreign policy, gun rights to healthcare, Hillary Clinton and Donald Trump seemingly couldn’t be farther apart. Finding areas of agreement isn’t an easy task. And yet when it comes to reinstating the Glass-Steagall Act, a financial regulation dating back to the Great Depression, the rivals agree – at least their party platforms do.
The original goal of Glass-Steagall, also known as the Banking Act of 1933, was to separate Main Street from Wall Street, as it were. Commercial banks that made money by taking deposits and making loans couldn’t simultaneously trade securities. The law was officially repealed back in 1999, although it had lost most of its bite well before then. (For more on the topic, see What Was the Glass-Steagall Act?)
However, in the wake of the 2007-2008 financial crisis, there’s been a movement afoot to bring the legislation back. Progressive politicians like Senators Bernie Sanders and Elizabeth Warren, in particular, have argued that the Great Recession proves government needs greater oversight of the banking system.
Targeting a Key Voting Bloc
It is a surprising turn of events, to say the least, that both the Republican and Democratic parties inserted the revival of Glass-Steagall into their official platforms within the past month.
The Republicans have long been the protectors of free markets and an unencumbered financial sector. This is the party that fought tooth-and-nail to stop a group of Wall Street regulations known as Dodd-Frank back in 2010.
It’s an equally strange position for the Democrats, since their nominee argued early on in the campaign that the 1933 law had nothing to do with the financial meltdown of a few years ago. After all, it was Bill Clinton who signed the legislation to repeal Glass-Steagall in 1999.
So why the policy change during the conventions last month? It looks, at least in part, to be an attempt on the part of both camps to attract Sanders supporters, who showed at the Democratic gathering that they’re not quite ready to fall in line behind the former Secretary of State.
In Trump’s case, the position also conforms to his populist message on issues like immigration enforcement and free trade. In addition, he doesn’t have a whole lot to lose by standing up to Wall Street, since the vast majority of its donations have gone to Clinton.
What we’re left with are two parties that have more or less the same stance on the issue, despite having bases that nearly always lock horns when it comes to financial regulation. In fact, the Republican platform actually uses more explicit, direct language, advocating for the law’s reinstatement. “We support reinstating the Glass-Steagall Act of 1933, which prohibits commercial banks from engaging in high-risk investment,” the document reads.
The Dems call for “an updated and modernized version” of the law, perhaps leaving room for a slightly softer version of the bill to fit our 21st century banking system. “Banks should not be able to gamble with taxpayers’ deposits or pose an undue risk to Main Street,” the party platform states.
The mutual embrace of Glass-Steagall seems to make political sense, at least in this go-round. But are there actually merits to the 1933 law?
The most vocal supporters of the regulation (like Sanders) tend to link its repeal, in an off-hand way, with the financial crisis starting in 2007. Most economists, however, have a harder time finding that connection.
For one thing, the big commercial banks that ran into trouble – a list that includes Wachovia and Washington Mutual – did so primarily because of the bad mortgages they provided, not because of their involvement in the securities market. And the investment giants that failed, like Lehman Brothers and Bear Stearns, wouldn’t have been covered by Glass-Steagall anyway.
To some advocates, that’s not the point. The financial crisis, they say, showed that a lack of oversight with respect to the big banks can create chaos. So even if Glass-Steagall’s repeal wasn’t the root cause of the last meltdown, it might contribute to the next one. (For more on why banks fail, read Mark-to-Market Mayhem.)
Sander’s surprising success in the primaries shows that more than a few Americans hold that view. Now, the two main political parties look as if they’re trying to tap into that anti-Wall Street sentiment to sway uncommitted voters.
The Bottom Line
The restoration of Glass-Steagall is one of the rare areas of agreement in an otherwise over-heated presidential run. But whether the regulation will safeguard Americans or needlessly burden lenders remains an open question.