Daily Archives

White House economic adviser Gary Cohn said he backed bringing back the Glass-Steagall Act, a Depression-era law that would revamp Wall Street banks by splitting their consumer-lending businesses from their investment arms.

The National Economic Council director, also a former Goldman Sachs president, expressed support to lawmakers for a banking system where firms would focus primarily on trading and underwriting securities or issuing loans.

Big banks have strongly opposed such a move that would fundamentally overhaul their business. Reinstating the law, which was repealed in 1999, has not attracted significant attention in Congress, but advocates in the White House and both parties now argue it would provide critical safeguards to prevent another financial crisis.

Critics of that approach say it lacks nuance and would not have prevented the last financial meltdown.

The fact Cohn, widely viewed as one of Wall Street’s own, was willing to push that position spooked big banks’ representatives in Washington.

The White House confirmed Cohn’s remarks in a private meeting with lawmakers on Wednesday. A spokesperson said he was “simply discussing the President’s previously stated position” in favor of a “21st century Glass-Steagall.”

Cohn’s remarks were first reported by Bloomberg.

The Trump administration has indicated support for a return to Glass-Steagall. The White House has stuck by the idea since it was included in the Republican Party platform during the presidential campaign, and Treasury Secretary Steven Mnuchin expressed interest in a modernized version of the law.

When asked on Thursday when large financial institutions should begin to worry about Glass-Steagall becoming a reality, one industry representative said, “Right now.”

However, any legislation establishing such a firewall faces long odds in the current Congress. The heads of the House and Senate banking committees have indicated support for alternative approaches, and efforts to move Glass-Steagall legislation in prior years have garnered little support.

“A new Glass-Steagall would require legislation, and it simply isn’t a priority issue in Congress,” wrote Ian Katz, a financial policy analyst for the research firm Capital Alpha Partners, in a note to clients.

In the meeting which was arranged by Senate Banking Committee Chairman Mike Crapo, Cohn was asked by Senator Elizabeth Warren about Glass-Steagall. Cohn responded favorably, noting that the Republican Party platform supports the idea, according to sources familiar with the meeting. The meeting included lawmakers from both parties and their staff.

Bringing back Glass Steagall would likely have a significant impact on banks like JPMorgan Chase, Bank of America and Citigroup that have large highly intertwined commercial lending and investment banking operations, say analysts.

It would impact Goldman Sachs Group and Morgan Stanley to a lesser degree although, they would likely have to revert to being standalone investment banks and shed their deposit funding.

Here are some details about the law, called the Glass-Steagall Act:

What is Glass-Steagall: Originally passed as part of the U.S. Banking Act of 1933, Glass-Steagall established a firewall between commercial and investment banking activity. The law was whittled away over time as banks gained permission to engage in more trading activity, and was repealed altogether in 1999 with the Gramm-Leach-Bliley Act.

Who supports it?: Since the 2008 financial crisis, Glass-Steagall has become a calling card for politicians eager to crack down on Wall Street. Democratic Senator Elizabeth Warren frequently invokes it, and Senator Bernie Sanders made it a major part of his presidential campaign. President Donald

Trump also seized on the policy during his campaign.

What does the White House say?: The Trump administration has not backed away from his campaign stance, but there are questions about how aggressively the president will push for a new law. The issue only tends to come up when officials are asked about it. Treasury Secretary Steven Mnuchin said he supported a modern version of Glass-Steagall in response to a

question during his confirmation hearing. White House Press Secretary Sean Spicer said the White House supports the proposal when asked by reporters. Cohn responded favorably when asked by Warren at a private meeting with senators.

What would a new Glass-Steagall look like?: There are number

of ideas to create what some refer to as a “21st Century Glass-Steagall.” Warren has proposed splitting commercial and investment banking, and also barring depository institutions from using modern financial instruments like derivatives. Thomas Hoenig, the vice chair of the Federal Deposit Insurance

Corporation, has proposed a similar split, and would subject banks to a higher, 10 percent capital requirement. Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, would force big banks to take on so much capital they would prefer to split into smaller institutions.

Could it happen?: Although many Wall Street critics have seized on Glass-Steagall, efforts to change the law have garnered very little support. Warren’s proposal received just a handful of legislative co-sponsors. And because Congress and the White House are still consumed with complex fights over health care and tax reform, there seems to be little appetite for a

broad, controversial overhaul of the financial system.

Are there risks for banks?: Big U.S. lenders including JPMorgan Chase, Bank of America and Citigroup would be most impacted, because their commercial lending and investment banking operations are closely

intertwined, say analysts. Goldman Sachs and  Morgan Stanley might be less impacted, although they would likely have to revert to being standalone investment banks and shed their deposit funding. But even if Glass-Steagall does not become law, the industry may have to spend money, time and

energy lobbying against the idea, when they would rather focus on rolling back existing rules.
…

Protesters in Argentina clashed with police during marches over government austerity measures on Thursday as labor unions challenged President Mauricio Macri in the first general strike since he took office 16 months ago.

Security forces used high-powered water cannon and tear gas to control picketers who had blocked the Pan-American Highway, the main road leading from the north to capital city Buenos Aires, where normally bustling streets were half-empty and businesses were closed.

Truck and bus drivers, teachers, factory workers, airport employees and the government customs agents who run Argentina’s all-important grains export sector walked off the job at midnight for 24 hours.

“No customs officials are here, so there will be no exports or imports today,” said Guillermo Wade, manager of the maritime chamber at Argentina’s main grain hub of Rosario. The country is the world’s top exporter of soymeal livestock feed and the third-largest supplier of soybeans.

Macri took office in December 2015. He eliminated currency and trade controls and cut government spending, including gas subsidies, a move that steeply pushed up home-heating bills.

The strike came as Macri welcomed hundreds of potential investors and foreign officials to a meeting of the World Economic Forum in Buenos Aires. Blocks away from the hotel where the meeting was held, protesters clamored for wage increases in line with inflation, which was 40 percent last year and expected to be about 20 percent in 2017.

“The situation is dramatic,” Julio Piumato, a spokesman for labor umbrella group CGT, said in a telephone interview.

“Wealth is being concentrated in the hands of a few at the same rate that poverty is growing,” he said. “Urgent measures are needed to create employment. One out of every three Argentines is poor.”

The one-day work stoppage came ahead of an October congressional election that will gauge Macri’s strength going into his 2019 re-election bid. The market is concerned about a political comeback by previous President Cristina Fernandez, who boosted the government’s role in the economy during her eight years in power.

Macri took office promising a wave of foreign investment that has been slow to manifest itself. Investors want to see that his Cambiemos coalition remains the biggest vote-getter in heavily populated areas like Buenos Aires, which will be key to the 2019 election.

He was elected after Fernandez left Argentina with rampant inflation, dwindling central bank reserves and a wide fiscal deficit.
…

Brazilian President Michel Temer plans to water down its landmark pension reform proposal to ease lawmakers’ resistance to the controversial bill key to rebalance the government’s depleted finances.

Temer said in a radio interview on Thursday he has authorized the lawmaker sponsoring the plan to alter its terms as long as he maintains the bill’s minimum retirement age. He did not specify what changes could take place.

The reform plan, submitted last year to Congress, sets a minimum retirement age at 65 for both men and women and requires more years on the job for workers to gain full pension benefits.

Those points and others to limit benefits have drawn criticism from public servants and labor unions alike, irking lawmakers who face elections next year.

A newspaper survey of lawmakers on Wednesday showed support for the proposal fell well below the 308 votes necessary to pass the lower house of Congress, with only 92 in favor and 242 against.

Arthur Maia, the lawmaker sponsoring the legislation, told reporters later on Thursday that he will change the proposal to protect the poorest without hurting the “backbone” of the amendment. He is considering altering the transition rules for those nearing the retirement age, easing pension requirements for farmers and agricultural workers while keeping some special benefits to teachers and police.

Maia said he will unveil his proposed changes on April 18.

A revamp of Brazil’s costly pension system is the centerpiece of Temer’s crusade to balance the government budget and reverse the rise in public debt as he seeks to lift Latin America’s largest economy from its deepest recession on record.

Still, some investors fear he could face a rocky road ahead due to a bickering Congress and corruption probes ensnaring senior figures of his administration.

Temer could even be unseated if Brazil’s top electoral court rules that he and former President Dilma Rousseff, under whom he was vice president, used illegal money to fund their 2014 campaign. Rousseff was impeached in 2016.

The Supreme Electoral Tribunal (TSE) on Tuesday delayed any verdict in the trial until at least May, playing into what Temer’s aides have outlined as a defense strategy centered on dragging the case out through 2018.

Still, Temer said in the radio interview he wishes that the issue will be solved “as soon as possible” in order to reduce uncertainty.
…