It wasn’t just Wall Street in Hillary Clinton’s cross-hairs Monday — the Democratic presidential contender also took aim at Republican lawmakers.
Clinton penned an op-ed in The New York Times Monday outlining her plans to rein in the financial sector. While the piece largely reiterates the reform strategy the former secretary of state outlined in October, it also targets for assault the GOP and its financial reform policies. Last time
She warns of GOP politicians in Congress and on the campaign trail who are “dead-set on rolling back critical financial protections” and pinpoints legislators who are “working to attach damaging deregulation riders” to the spending bill being hammered out this week.
“As president, I would not only veto any legislation that would weaken financial reform, but I would also fight for tough new rules, stronger enforcement and more accountability that go well beyond Dodd-Frank,” she writes.
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She calls attention to the threat of defunding the Consumer Financial Protection Bureau, which is responsible for consumer protections in the financial sector, as part of the spending bill currently being debated. She also promises to appoint “tough, independent regulators” to the Securities and Exchange Commission and Commodity Futures Trading Commission and to ensure both bodies are independently funded “so they can do their jobs without political interference.”
All are jabs at the GOP.
The CFPB, which has returned more than $10 billion to consumers over the past five years, has been under attack by the GOP essentially since it was put in place in 2010 under Dodd-Frank. Congressional Republicans have proposed that it should be funded through the Congressional appropriations process instead of by the Federal Reserve, as it is today (though unlike other financial regulators, its budget is capped).
“They say it’s unaccountable because it doesn’t have to justify its funding before Congress,” said James Kwan, associate law professor at the University of Connecticut.
Bills have been introduced in both houses to subject the CFPB to appropriations. Wisconsin Representative Sean Duffy introduced a bill proposing such reforms in March, and Georgia Senator David Perdue introduced another in May. Such a proposal is part of the proposed Financial Services and General Government appropriations bills that passed out of committee in both houses.
At the Wisconsin Republican presidential debate in November, GOP candidate Carly Fiorina targeted the CFPB as part of her critique of Dodd-Frank as an example of crony capitalism. She said the agency is a “vast bureaucracy with no congressional oversight that’s digging through hundreds of millions of your credit records to detect fraud” and warned that “this is how socialism starts.”
During the same debate, the American Action Network, a right-leaning “action tank,” aired a 30-second attack ad against the bureau. Clinton responded to the ad on Twitter.
The @CFPB protects borrowers from unfair and deceptive Wall Street practices. Attacks against it are unfounded and outrageous.
— Hillary Clinton (@HillaryClinton) November 11, 2015
U.S. Sen. Elizabeth Warren, the Massachusetts Democrat who helped create the CFPB and is a frequent Wall Street critic, supported Clinton’s proposals in a Facebook post.
The former secretary of state “is right to fight back against Republicans trying to sneak Wall Street giveaways into the must-pass government funding bill,” she said. “Whether it’s attacking the CFPB, undermining new rules to rein in unscrupulous retirement advisers, or rolling back any part of the hard-fought progress we’ve made on financial reform, she and I agree: ‘President Obama and congressional Democrats should do everything they can to stop these efforts.'”
Unlike the CFPB, the SEC and CFTC are supported by Congressional appropriations, which Clinton hopes to change. But she won’t be able to do so without a fight from Republicans. GOP legislators have resisted funding increases to both regulatory agencies, drawing the ire of congressional Democrats and the White House.
“Republican appropriators in the House undercut the SEC and CFTC by refusing to adequately increase their funding, despite the fact that they are given significant new responsibilities under Dodd-Frank,” reads a July report from House Dems. They pointed to Republicans’ vote against an amendment that would have restored SEC funding to $1.7 billion and another against an amendment that would have restored funding to the CFTC to $280 million (both amounts were President Obama’s requests).
What Effects Would Clinton’s Regulations Have on Wall Street?
But what of the reforms themselves and the effects they might have on Wall Street?
Clinton has taken an increasingly tough stance on Wall Street regulation on the campaign trail, and given the stock market’s reactions to some of her statements, it appears a number of investors believe she has a good chance at making it to the Oval Office and enacting reforms. Should bankers be shaking in their boots?
“Basically, we have a system now where banks are doing whatever they want, and then they pay a fine. That’s just a cost of doing business. So, they may look at their cost of doing business going up, but the devil would be in the details,” said John Goodell, associate professor of finance at the University of Akron.
Appointing “tough regulators,” might help address Wall Street’s cozy relationship with government regulators, highlighted in the 2010 documentary Inside Job, has been criticized in the past by reformers who pointed out the flow of executives between finance industry firms and Washington agencies.
Current SEC Chair Mary Jo White, for instance, is a former securities lawyer at Debevoise & Plimpton, whose specialties include mergers and acquisitions, syndicated loans and high-yield bonds. Christopher Cox, who held the same post under President George W. Bush, specialized in corporate finance and venture capital at Latham & Watkins before winning election to Congress.
Clinton has promised to impose a new risk fee on banks with more than $50 billion in assets — institutions like JPMorgan, Citibank, Bank of America, Wells Fargo and Goldman Sachs — as well as “other systematically important financial institutions.”
“If that fee were high enough, then banks would have an incentive to become smaller, which would be good, because individually they wouldn’t pose as much risk,” said Kwan.
She has also pledged to make sure that when firms do pay fines, they admit wrongdoing. Banks have already paid quite a bit to make up for past mistakes. According to an analysis from University of Chicago finance professor Luigi Zingales, the financial sector paid $139 billion from January 2012 through December 2014 alone. Under a Clinton presidency with increased fees and fines, that number could very well go up.
While Clinton has promised to increase fines on big banks, what she does not have on her Wall Street agenda, at least explicitly, is breaking them up. She has declined to push for a reinstatement of Glass-Steagall, a Depression-era rule that separated traditional banking from investment banking and was repealed under her husband’s watch in 1999.
In addition to the biggest banks, Clinton has also targeted what she calls the “shadow banking sector,” including hedge funds, investment banks and other institutions, which she says is another important facet of the problems on Wall Street today.
“My hunch, regarding the [big] banks, is that the reforms will not prevent bad behaviors but somewhat increase the cost of business for engaging in illegal activities. In other words, the fines might be larger,” Goodell said. “Regarding shadow banks such as hedge funds, there may be more potential for improvement as these entities have been less supervised in the past.”
Should Clinton be successful in gaining the presidency and reining in Wall Street, as she promises to do, there is no doubt there would be an impact on some of the biggest publicly traded companies in the country — and those they do business with; so, a large chunk of the economy. And while it may be costly for banks and their investors in the short term, there is hope that eventually the outlook would be more positive.
“These types of proposals can focus on long-term value and preventing harm. They will serve investors and the economy very well,” said Joe Valenti, director of consumer finance at progressive policy research and advocacy organization the Center for American Progress. “There’s an important piece here of encouraging a long game and also addressing the wide swath of financial actors and not just the big banks.”
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Clinton in the Pocket of Wall Street?
To be sure, there are those who doubt Clinton’s sincerity about bringing any reform to Wall Street.
The former first lady’s relationship with the finance industry has been heavily scrutinized, especially in light of some of her campaign donations. An analysis of Federal Election Commission data, compiled by the Center for Responsive Politics, shows Clinton has received $5.9 million from Wall Street through the third quarter.
At the most recent Democratic presidential debate in November, Vermont Senator Bernie Sanders characterized Clinton’s plans for Wall Street reform as “not good enough” and pinpointed the campaign funding issue.
“Here’s the story. Let’s not be naïve about it. Why over her political career has Wall Street been the major campaign contributor to Hillary Clinton? Maybe they’re dumb and they don’t know what they’re going to get, but I don’t think so,” he said.
Clinton made what some perceived as a bizarre defense of her Wall Street ties, invoking the terrorist attacks of September 11, 2001.
“So, I represented New York, and I represented New York on 9/11, when we were attacked. Where were we attacked? We were attacked in downtown Manhattan, where Wall Street is,” she said. “I did spend a whole lot of time and effort helping them rebuild. That was good for New York. It was good for the economy, and it was a way to rebuke the terrorists who had attacked our country.”
In an interview with “CBS This Morning” aired in early December, Clinton defended her Wall Street donations. When asked by host Charlie Rose if she had taken money from the financial industry, she responded, “Yeah. But that has nothing to do with my positions. Anybody who thinks that they can influence me on the ground doesn’t know me very well.’
A number of Republican presidential contenders have received much more Wall Street money than Clinton. Former Florida Governor Jeb Bush, who has raised more than $30 million, and Texas Senator Ted Cruz has received $12.5 million.