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Is Trump the Community Banking Candidate?
Tuesday, July 26, 2016 6:45 AM

Donald Trump has made no secret of his disdain for Sen. Elizabeth Warren (D-Mass.), but that is not stopping him from embracing one of her key policy positions as part of the Republican platform—a return to the 1930s-era Glass-Steagall Act.

Donald Trump's decision to embrace the reinstatement of the Glass-Steagall Act is part of an effort to cast him as the champion of community banks, according to his top advisers. While the move came as a surprise to the banking industry, a Trump campaign adviser said Wednesday that it was part of a broader focus on helping small businesses.

"It is not just about community banks, it is about who really understands local communities," said Stephen Moore, a senior economic contributor for the conservative and libertarian activist group FreedomWorks. "Community banks are critical to small business."

Moore said the Trump campaign will highlight the issue over the next few months as a stark difference between the Republican nominee and his rival Hillary Clinton. "We are going to hammer them on that," he said.

That may be difficult to do, as the Democratic platform also calls for restoring Glass-Steagall, and Clinton has joined calls to grant regulatory relief for small institutions. But Moore's comments echo those of Paul Manafort, Trump's campaign manager, who said during a press briefing last week that Clinton is the candidate of the big banks.

"They know she is their champion and they have supported her fully; we are supported by small banks and Main Street," said Manafort.

Although big banks have never been fans of the Dodd-Frank Act, both Manafort and Moore sought to portray the 2010 financial reform law as a boon for big financial institutions.

"We have created a posture where we are actually rewarding the big banks like B of A and Citi and we are seeing the sharks swallow up the minnows," said Moore. "That is horrible because you are going to get a Fannie Mae situation where you are going to have five mega banks that are regulated like utilities."

He argued that big banks want to preserve Dodd-Frank because it hurts their competitors. "That is why a lot of times you see big industry supports regulation," said Moore. "What regulation does is it keeps out the smaller competitors."

Beyond calling for a repeal of Dodd-Frank, Trump himself has not engaged substantively on financial issues during his primary campaign. But embracing Glass-Stegall, which separated commercial and investment banking, may be a smart move politically.

Most Wall Street banks are big donors to Clinton's campaign, giving Trump nothing to lose by embracing a populist position that would damage them. Community banks, meanwhile, are popular with members of both political parties, but tend to have Republican leanings.

Whether Trump can actually become the candidate for community bank candidate is up for debate, however.

Brian Gardner, an analyst at Keefe, Bruyette & Woods said it is possible for Trump to become the community banking champion because neither candidate has taken that mantle. But reinstating Glass-Stegall appears to be more directed at playing to the public's anger over the 2008 government bailout, he said.

"I would argue that there is a downside to" reinstating Glass-Steagall for community banks in that "the large banks would be solely be focused on commercial banking, they may actually then have room to buy banks and then they may get back in the M&A business," said Gardner.

Whether the restoration of Glass-Steagall would help community banks is unclear and depends on what any bill would actually do.