Lloyd Blankfein is not losing any sleep over the potential for a revival of Glass-Steagall.
The chairman and chief executive of Goldman Sachs told CNBC in a recent interview that adapting to a return of Glass-Steagall, a New Deal era law that required financial firms to split their commercial lending operations from their investment banking, would be “relatively easy” for his firm.
“We are probably the large bank that’s best positioned for a return to Glass-Steagall because we’re not a universal bank,” Blankfein said.
Glass-Steagall was passed in the wake of a wave of bank failures between 1929 and 1933. Following a series of high-profile hearings that exposed Wall Street’s excesses, the law was passed requiring financial conglomerates to split their securities businesses from their banking businesses. The law lost favor with regulators in the 1980s, many of whom believed that it was outdated and holding U.S. banks back from competing with European and Japanese universal banks. After years of regulators chipping away at the edges and faltering attempts at repeal, Congress finally passed the repeal in 1999.
A lesser known part of this history is that many of the non-bank Wall Street investment firms–including Merrill Lynch, Morgan Stanley and Goldman Sachs–fiercely fought the repeal for years. They argued that banks, protected by deposit insurance and with access to the Federal Reserve’s discount window, would be unfairly advantaged if allowed to fully enter the enter investment banking business. The banks, they feared, would come to dominate the business.
Interest in reviving Glass-Steagall grew following the financial crisis. It has been endorsed by many Democrats and the Trump administration. But few on Wall Street believe that there’s a realistic possibility that it will return.
“You know, I think the eggs are out of the shell and the omelet has been made,” Blankfein said.
While Goldman and, to a lesser extent, Morgan Stanley, would likely be able to spin off banking operations relatively easily, such a change would be much more difficult for J.P. Morgan Chase, Citigroup and Bank of America. J.P. Morgan Chase would arguably have the hardest time, as it has perhaps the best integrated operations of the universal banks.
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