WASHINGTON — Observers are divided whether National Economic Council Director Gary Cohn's support for a modernized Glass-Steagall Act is purely opportunistic or a sincere wish to significantly reshape the financial services industry.

Cohn told Senate Banking Committee members at a private meeting this week that he supported the reinstatement of the 1930s-era law separating commercial and investment banking, according to Bloomberg News, backing comments by other Trump administration officials.

The news was a surprise since Cohn, a former president of Goldman Sachs, was widely assumed to be opposed to such a move.

“Cohn was the most likely obstacle within the Trump White House,” Jaret Seiberg, a policy analyst at Cowen Research Group, said in a note to clients. “With him supporting Glass-Steagall's restoration, there is no one in the inner circle left to fight it.”

Gary Cohn, director of the National Economic Council.
National Economic Council Director Gary Cohn, above, "was the most likely obstacle within the Trump White House" to restoring Glass-Steagall, an analyst said. Bloomberg News

Yet it remains unclear just how committed the Trump administration is to the idea. Though it has been endorsed by Treasury Secretary Steven Mnuchin and was added to the GOP platform at candidate Donald Trump's request, there is considerable skepticism within the industry that the administration is serious about it.

Privately, some industry representatives said Cohn's comments, which reportedly came in response to a question by Sen. Elizabeth Warren, D-Mass., aren't a surprise. If Cohn had objected to the restoration of Glass-Steagall, or even appeared tepid about it, he would have put himself at odds with the public views of the Trump administration. It was politically safer for Cohn to reiterate the administration's view than to suggest there are divisions at the White House, they suggested.

Moreover, the Trump administration has nothing to lose by continuing to express support for reinstating Glass-Steagall, which remains popular with populists on the left and right.

"If you can maintain something that is consistently populist, but also doesn’t bind you to anything because there is no path forward, it is a simple calculus,” said a bank consultant who spoke on condition of anonymity.

The consultant added that reinstating Glass-Steagall would be inconsistent with what the administration has done so far, as well as moves by House Republicans.

“The one thing that we have noticed throughout this time is when the Trump team was pushing out finreg policy, it is about reducing regulations so banks can lend to business,” the consultant said.

A White House spokesperson said Cohn was not setting a new policy.

"The President spoke to the need for a simplification of the banking system on the campaign trail, what he called a '21st century Glass-Steagall,' to make it easier for businesses to grow and create jobs in their communities," the spokesperson said. "Gary Cohn was simply discussing the President's previously stated position.”

Norbert Michel, a research fellow in financial regulations at the Heritage Foundation said that Cohn’s comments should be taken seriously, but moving legislation reinstating the law could pit the administration against House Republicans.

It would be “a big showdown between the House and the administration,” Michel said. “A Glass-Steagall-type situation is the polar opposite what the House wants to do.”

Big banks, meanwhile, are likely to fight any Glass-Steagall effort tooth and nail. The Financial Services Roundtable which represents the largest banks, argued Thursday that such a move would undermine Trump’s America First policy.

"Limiting U.S. banks in ways not required of their global competitors will hand over business opportunities and economic growth to foreign banks and companies. These jobs and growth should stay here,” said Tim Pawlenty, the head of the Roundtable and former governor of Minnesota.

Some argue that such a proposal could gain traction because the idea is also supported by those on the left, including progressives like Warren and Bernie Sanders, I-Vt. Warren reintroduced her Glass-Steagall bill on Thursday, citing Mnuchin's and Cohn's support for such a proposal.

"Reinstating Glass-Steagall has broad bipartisan support from the public and policymakers, including from President Trump, Treasury Secretary Steve Mnuchin, and National Economic Council Director Gary Cohn," Warren's press release said.

Yet whether Democrats and the Trump administration could agree on a plan would depend greatly on the specifics of the proposal, which have not been articulated yet. Federal Deposit Insurance Corp. Vice Chairman Thomas Hoenig has called for a ring-fencing type plan in which a banking company would separately capitalize its investment and commercial banking arms, but it's uncertain if the Trump administration supports that vision.

“Should Congress actively consider a reinstatement of Glass-Steagall, the details of the proposal would be a significant consideration,” said Edward Mills, a policy analyst at FBR Capital Markets. “Additionally, the motive of supporters will matter. If this is seen as a backdoor way to help Goldman Sachs and Morgan Stanley shed Federal Reserve supervision, it could become politically toxic, especially among Democrats.”

Emily Liner, a senior policy adviser at the centrist think tank Thirdway, said “Cohn's interest in Glass-Steagall has all the markings of a wolf in sheep's clothing” and added that the Volcker Rule, which prevents banks from using customer deposits for proprietary trading, already acts a modern version of the law.

Yet some observers remain convinced the Trump administration is sincere.

“At some point the market is going to have to accept that the Trump administration is serious about restoring the Glass-Steagall separation between commercial and investment banking,” Seiberg said.