Leading US banks are too huge and unsafe. They need to be compulsorily reduced, separating investment banking from the consumer. With such an offer, US President Donald Trump.
In an interview with Bloomberg TV, the head of the White House announced that the fragmentation of the largest banks is the issue he is currently considering. "There are people who want to return to the old system, right? We are now thinking about this," said Trump.
Under the old system he had in mind adopted as early as 1933. The Glass Law - Stigolla, aimed at combating the aftermath of the Great Depression and the financial crisis that has engulfed the country. This act prohibited ordinary commercial banks from engaging in investment activities, since playing high-risk assets jeopardized the interests of ordinary depositors.
After the Second World War, when the American economy began to grow rapidly, the law was considered obsolete, but it was not decided to cancel its long years. In the 1960s, commercial banks expanded the list of securities in which they can invest funds stored on deposits. Only in 1999. The US banking system has acquired its present form: Congress passed the law of Gramm-Leach-Blailey, which removed from banks a ban on combining commercial and investment activities for the same bank.
The adoption of the law was in the interests of giant banks, among which was Citigroup. According to the opinion widespread in America, the removal of such restrictions predetermined the global financial crisis of 2008. Large financial groups risked all their assets in the name of superprofits. The bubble puffed up until it burst: the devastation of Lehman Brothers led to the collapse of other American banks and companies.
Under President Barack Obama in 2010. The Dodd-Frank law was adopted, limiting the combination of investment and commercial activities of banks and tightened control over them. However, before the splitting of the banking empires, it did not come about. Now Trump proposed to complete the work begun by his predecessor.
There is a possibility that the president's plans will not be realized. Amendments of 1999. , Which unleashed the hands of large banking groups, were developed on the initiative of Republican congressmen. The act was supported by representatives of both parties, but Republicans voted for him more willingly. Now in both chambers of the Congress representatives of this party have a majority. Their opinion on the latest Trump idea they have not yet voiced, but it is possible that the congressmen will not support a purely "democratic" law that restricts the rights of big business in the interests of ordinary citizens.
After a brief shock caused by Trump's words, the markets reacted positively to the prospect of fragmentation of banks. Quotes of the largest financial corporations at the start lost 2-3%, then quickly recovered, and the trading session was completed in positive territory. In this there is nothing strange. Experts are sure that the idea of ??Trump will be beneficial to everyone: the market it will bring more severe competition, and investors will be able to successfully sell their shares in the fragmentation of large companies. If investors, for example, have the opportunity to buy only shares of the investment bank JPMorgan, but do not own shares in the commercial unit Chase, then such securities will cost 1.5-2 times higher than now.
It is noteworthy that earlier the American president came forward with the opposite idea. He wanted to abolish part of the provisions of the Dodd-Frank law restricting the activities of banks. The proposal stumbled upon a sharp criticism of Deputy Chairman of the Board of Governors of the Federal Reserve Stanley Fischer. He said that such a decision poses a serious threat to the financial system of the United States and the world and that it can provoke a recurrence of the global crisis of 2008.