Though some financial analysts see the chance of politicians actually putting up a new wall between commercial and investment banking as slim, they acknowledge it represents at least “a headline risk” to the banking sector.
“Many Democrats would support reinstating Glass-Steagall, but in return we think they would need to accept significant changes to Dodd-Frank and are unlikely to do so,” said KBW bank analysts Brian Gardner and Michael Michaud, in a recent note.
“They might be asked to support the elimination of the Consumer Financial Protection Bureau, and we think that would be a bridge too far for many Democrats,” they explained.
Plus, congressional Republicans are not poised to support Glass-Steagall’s return since it likely is “too high a price to pay for changes to Dodd-Frank.”
Still, a renewed Glass-Steagall has the support of Treasury Secretary Steven Mnuchin and Federal Deposit Insurance Corp. Vice Chairman Thomas Hoenig and seems to be poised for extensive debate.
Which institutions would benefit from the separation of commercial and investment banking businesses?
Community banks and regional banks, according to Gardner and Michaud.
They are poised to “pick off some business and market share from banks that are forced to restructure.”