American Banker Asked Yellen To Weigh In Against Glass-Steagall—Which She Did
March 15, 2017 (EIRNS)—More than halfway through Federal Reserve chairwoman Janet Yellen’s press conference following the Federal Open Market Committee meeting, a reporter for American Banker raised Wall Street’s biggest worry: Glass-Steagall?
Yellen claimed she hadn’t heard any specifics about a Glass-Steagall plan, but in any case, she sees no reason to go back to that. As the Wall Street Journal so elegantly summed up Yellen’s response: "Bring Back Glass-Steagall? Nah."
Both reporter John Helpman and Yellen spoke as if their discussion was over Treasury Secretary Steve Mnuchin’s sophistical discussion of a 21st-Century version Glass-Steagall, for which no specifics have been given. The wire which American Banker then rushed into print was more honest, however. Helpman cited much more of the debate going on in the country: Trump campaign manager Paul Manafort announced in July 2016 that the separation of commercial and investment banking would be introduced into the Republican Party platform; White House Press Secretary Sean Spicer reiterated the president’s support for that policy last week; Federal Deposit Insurance Corp. Vice Chairman Thomas Hoenig outlined
Like the Wall Street Journal, the American Banker raised Wall Street’s related worry that Hoenig’s name has been circulated as a potential vice chairman for supervision at the Fed.
The full exchange went as follows:
QUESTION: Hi, John Helpman [ph] of American Banker. I have a regulatory question, if I may. The administration’s recently reiterated its support for a reinstatement of Glass-Steagall. Treasury Secretary Mnuchin has called for a 21st-century Glass-Steagall. Keeping in mind that there’s no specifics on this proposal, is the fundamental idea of separating commercial banking from investment banking a fruitful line of inquiry? Is this the right path to be pursuing?
YELLEN: So, I’ve not seen any concrete proposals along this line. I don’t really know what a 21st-century Glass-Steagall would look like. I think my reading on the financial crisis is that that wasn’t the major source of the financial crisis. In fact, many of the problems emanated from firms that were investment banking units. To me, an important reform in the aftermath of the crisis was to make sure that investment banking activities where—that were a core part of the shadow banking system where leverage had built, that those were appropriately capitalized, had appropriate liquidity and their management was strengthened and that’s what we have tried to do.
But obviously, we would look at any proposals that are put forward. I’m not aware of anything concrete to react to.
QUESTION: So you don’t think it’s necessary [inaudible]?
YELLEN: Well, I don’t think it was the cause of the financial crisis and I do feel that we have significantly strengthened supervision of bank holding companies that incorporate investment banking activities.