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Why big banks could be broken up no matter who wins the White House

No matter who wins the election, the big banks could be on the chopping block.

Keefe Bruyette & Woods analyst Brian Gardner said he can imagine a scenario where horse trading in Congress next year results in a return of rules that would limit the activities of big banks as Congress tries to help smaller banks. The community banks are concerned by new regulatory capital requirements and the complexity of the rules.

Both political parties have mentioned in their party platforms returning to a simpler, Depression-era banking system by reintroducing the Glass-Steagall Act, which separated commercial and investment banking. The law was passed in 1933 but repealed in 1999 allowing for the expansion of financial institutions such as JPMorgan Chase and Citigroup.

Gardner said investors may be underappreciating the risk that a form of Glass-Steagall could be reinstated. "If Congress takes a serious look next year at regulatory relief for community banks and regional banks, then that is going to be an opportunity for the Elizabeth Warren wing of the Democratic Party to step in and pass some form of Glass-Steagall," said Gardner, who is director of Washington research at KBW.

But he also noted that party platforms are not binding and are many times ignored by candidates.

The Republican Party surprised many last week when it included a potential return to Glass-Steagall in its platform — traditionally not a GOP position.

GOP platform: "We support reinstating the Glass-Steagall Act of 1933 which prohibits commercial banks from engaging in high-risk investment. Sensible regulations can be compatible with a vibrant economy. They...


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