The Trump administration on Thursday distanced itself from a populist push to break up the nation’s biggest banks after months of publicly flirting with the idea.
Treasury Secretary Steven Mnuchin emphatically rejected that move during a Senate hearing in response to a question by Sen. Elizabeth Warren (D-Mass.).
Warren pressed him on what the administration meant by repeatedly saying it was open to an updated version of the Depression-era Glass-Steagall law, which separated commercial and investment banking.
Mnuchin, a finance industry veteran who’s leading the administration’s drive to overhaul Wall Street regulations, said splitting up the banks "would be a huge mistake."
That set off a testy exchange with Warren, who questioned how the administration could speak favorably of Glass-Steagall without supporting the breakup of the banks, which was at the heart of the law before it was repealed in 1999.
"This is like something straight out of George Orwell," Warren said during the Senate Banking Committee hearing.
Mnuchin’s comments put more daylight between the administration and the anti-Wall Street rhetoric that was a centerpiece of Trump’s winning campaign. The GOP party platform even included a pledge that stated, "We support reinstating the Glass-Steagall Act of 1933, which prohibits commercial banks from engaging in high-risk investment."
Yet Mnuchin’s testimony raised more questions about what administration officials have in mind by promoting what they call a "21st Century Glass-Steagall" — branding that Warren had previously adopted for a bill that would force banks to cease certain activities.
Early this month, National Economic Council Director Gary Cohn, the former president of Goldman Sachs, suggested in a private meeting with bankers that the administration’s definition of Glass-Steagall was merely developing different sets of rules for large and small banks, according to people familiar with the discussion.
"If we had supported a full Glass-Steagall, we would have said at the time that we believed in Glass-Steagall, not a 21st Century Glass-Steagall," Mnuchin said on Thursday.
He said the Trump team was "very clear in differentiating it." But many in the finance industry have been on high alert about the president embracing a breakup of the banks because the administration had not defined its position.
For Warren, a potential 2020 presidential contender, the revelation marked one more opportunity to attack President Donald Trump for abandoning a populist movement that ushered him into office and embracing policies more in line with Wall Street’s agenda.
"When it was politically convenient for Donald Trump and for the Republicans to say they were in favor of Glass-Steagall, then they were in favor of Glass-Steagall," Warren said in a rare scrum with reporters outside the hearing room. "But now that the giant financial institutions have been in to visit them, they’ve decided to reverse that 180 degrees."
Senate Banking Chairman Mike Crapo (R-Idaho) said in an interview that Mnuchin’s comments did not constitute a new position from the administration.
"Separating the function of investment banking from deposit banking and making sure there are adequate protections there was something I think most members of Congress were willing to look at, and it’s what I actually think they’re talking about," he said. "But the notion of an absolute Glass-Steagall, which was what he discussed today, is not something I think the administration has ever said that they supported."