Hillary Clinton’s campaign blueprint for reining in Wall Street contains a raft of measures, but not the one that liberal Democrats and activists wanted: A reinstatement of the Depression-era Glass-Steagall Act.
Glass-Steagall, which was repealed in Bill Clinton’s administration, separated commercial banks with deposits insured by the government from investment banks that underwrite and trade securities. Liberal Massachusetts Sen. Elizabeth Warren and other progressives have pushed the Democratic candidates to commit to passing a modernized Glass-Steagall.
In her plan released Thursday, however, Clinton declines to embrace the separation of investment and commercial banks.
While Glass-Steagall is a “serious approach,” Clinton wrote in an op-ed plublished by Bloomberg Thursday afternoon, “I prefer the path of tackling the most dangerous risks in a different way.”
She would impose a “risk fee” on big banks, broadly defined, that would become more onerous with bank size and exposure to risk. Although the proposal did not state what size the fee would be or how widely it would be applied, it’s the kind of specific proposal that liberals have sought and Wall Street would prefer to avoid.
Clinton also would boost regulators’ ability to require too-big-to-fail banks to break up or reorganize. Under the 2010 Dodd-Frank law, regulators have the authority, although it becomes relevant only after repeated instances of banks failing to demonstrate that they can fail without creating a financial crisis. Clinton, though, says she would strengthen that authority by giving the regulators “explicit statutory authorization.”
Furthermore, Clinton proposes closing loopholes in the Volcker Rule, a massive multi-agency regulation created by Dodd-Frank that prohibits banks from using insured deposits to trade for their own profit or owning hedge funds. The Volcker Rule was included in Dodd-Frank partly to re-create the wall between commercial and investment banking set up under Glass-Steagall.
Whether those measures go far enough to placate progressive activists who have been wary of Clinton’s ties to Wall Street remains to be seen.
At least one other Democratic presidential candidate, however, argued that they do not.
“We need a defined firewall between Wall Street and taxpayers so that we are never again forced to bail out a bank’s reckless behavior. There’s no mystery to what we need to do because we’ve already done it,” said a representative for Martin O’Malley, the former governor of Maryland who has sought to position himself on Clinton’s left during the campaign.
Both O’Malley and Bernie Sanders, the Vermont senator who has gained on Clinton in the polls, have endorsed Glass-Steagall. Both also have proposed breaking up the biggest banks: Sanders through legislation, and O’Malley through the existing “living wills” process required by Dodd-Frank.
