Diced Up

Executives at three of the six biggest banks were on the same page, saying they’d be happy if Trump loosened rules for smaller lenders and sold it as a new and improved Glass-Steagall. It would be a nicer fate for those institutions than getting diced up or having to ring-fence consumer banking from trading operations.

On the same day Trump made his breakup threat, Sean Spicer, his spokesman, said a 21st century Glass-Steagall would allow smaller banks to “spend less time complying with unnecessary requirements.” A spokeswoman for Cohn said he supports tailoring regulation according to bank size.

But Wall Street’s biggest firms also want Trump to roll back regulations that bother them. High up on their wish list is Volcker, the rule in the 2010 Dodd-Frank Act that limits how they trade with their own money and invest in private equity and hedge funds.

On May 8, at a meeting behind closed doors in Washington, Mnuchin told five regulatory agencies to reexamine what’s allowed under Volcker, according to two people familiar with the sit-down. It was a step that could give banks the flexibility to trade without getting into trouble. Banks also want the stress tests required by Dodd-Frank to be easier and less frequent. Trump said this year he expects “to be cutting a lot out of Dodd-Frank.”

Friendly Regulators

Bankers know it won’t be easy to gut that law in Congress, where House Financial Services Committee Chairman Jeb Hensarling’s Financial Choice Act is facing resistance from some members of his own party. But they’re confident friendly appointees will relax rules even if Congress doesn’t change them. Mnuchin, his counselors Justin Muzinich and Craig Phillips, Securities and Exchange Commission Chairman Jay Clayton, acting Comptroller of the Currency Keith Noreika and Randy Quarles, said to be Trump’s pick for top regulator at the Federal Reserve, have all worked at big banks or for them.

The shift from clashing with regulators to working with them isn’t lost on lobbyist Sam Geduldig, a partner at CGCN Group in Washington, whose clients include Goldman Sachs Group Inc.

“This is night and day,” the former top aide on the House Financial Services Committee said. He added that the industry always takes a president’s words on big issues seriously but there’s been no appetite on the Hill for reviving Glass-Steagall.

Wall Street’s critics won’t be shocked if Trump ends up deregulating banks after dangling the prospect of breaking them apart. Art Wilmarth, who teaches banking law at George Washington University Law School, thinks investment and commercial banking won’t be divided before another fiasco hits.