Mike & Co. —
Welcome back. Seat belts buckled? 2016 opened with a multi-percent loss in capital markets across the board globally the first day and a speech by Sen. Sanders outlining his financial regulatory priorities, replete with criticisms and challenges directed at HRC’s proposals the next day.
For now, a quick survey here of the policy recommendations in Sen. Sanders’ speech, with more analysis, etc., in an update to follow.
In a speech at the Town Hall near Wall Street this afternoon, Sen. Bernie Sanders laid out his plan to regulate some of the nation’s largest banks. Other proposals included governance reforms at the Fed, caps on credit card interest rates and ATM fees, and allowing post offices to offer banking services.
Sanders’ main proposals aim to
- Identify and dismantle all breaking up banks deemed “too big to fail” by Treasury in the first year in office
- Re-impose Glass-Steagall, separating commercial banking and investment banking
- Cap ATM fees at $2 and credit card interest rates at 15 percent
- Turn credit rating agencies into non-profit group
- Enact a tax against speculative investment
A brief drill down on these proposals:
Too Big to Fail — The idea, in the first 100 days, is to direct the Treasury Department to make a list of “too big to fail … commercial banks, shadow banks, and insurance companies whose failure would pose a catastrophic risk to the United States economy without a taxpayer bailout.” Within one year, break these institutions down to size or otherwise resolve them, using Section 121 of Dodd-Frank. Section 121 allows the FSOC to direct the Fed Board to vote to resolve a financial institution deemed a systemic risk to the national economy. This requires a two-thirds majority of the Board to vote and only applies to bank holding companies with assets exceeding $50 billion, or Fed-supervised non-bank financial companies.
No explanation was provided as to how to deal with inaction or unwillingness by the Fed to force these institutions into resolution. It’s a little hard to see what improvement, if any, the props makes to the resolution Title 1 and 2 process provided in Dodd-Frank except by adding an option to streamline it marginally. Note that several pieces of legislation to break up large banks have been introduced in Congress since the crisis, but none have won much support by either Democratic or GOP majorities.
Reinstatement of Glass-Steagall — This was initially proposed by Sens. Elizabeth Warren and John McCain last year. Sanders co-sponsored. Sanders today: “Shadow banks did gamble recklessly, but where did that money come from? It came from the federally-insured bank deposits of big commercial banks, something that would have been banned under the Glass-Steagall Act.”
HRC has repeatedly indicated wholesale support for Dodd-Frank, has proposed a robust set of systemic reforms to improve it, and has argued that restoring Glass-Steagall would not have prevented the crisis of 2008.
Credit Rating Agencies — The plan calls for turning for-profit ratings agencies (including Moody’s, Standard and Poor’s, and Fitch) into not-for-profit institutions.
“No longer will Wall Street be able to pick and choose which credit agency will rate their products,” said Sen. Sanders.
Reform the Federal Reserve — Sanders alleges the Fed suffers from “regulatory capture,” and is now run by the same sector that it is supposed to regulate. The plan would, “structurally reform the Federal Reserve to make it a more democratic institution responsive to the needs of ordinary Americans, not just the billionaires on Wall Street,” by reforming the practice of setting aside some Board seats for representatives of large financial institutions. The Fed would be restricted from active banking industry executives, ending what Sanders calls, “the foxes … guarding the henhouse.”
Reform the Federal Reserve — The Fed suffers from “regulatory capture,” and is now run by the same sector that it is meant to be regulating. The plan would to “structurally reform the Federal Reserve to make it a more democratic institution responsive to the needs of ordinary Americans, not just the billionaires on Wall Street” by reforming the practice of setting aside some Board seats for representatives of large financial institutions. The Fed would be restricted from active banking industry executives, ending what Sanders calls “the foxes … guarding the henhouse.”
The HRC campaign had called on Sen. Sanders yesterday to endorse her plan to regulate shadow banking. But Sanders’ piecemeal proposals on shadow banking barely scratch the surface. Credible reformer Mayor Bill de Blasio calls her plan “the toughest, farthest-reaching plan of anyone running for President.” The conversation is probably too bogged down in verbiage about recondite legislation like Glass-Steagall to resonate outside the core of the base but HRC’s proposals easily stand up to scrutiny so it is welcome.