Eugene Grygo, Chief Content Editor, FTF News
As the 2016 race for the presidency heats up, Wall Street and its many sins are back in the spotlight.
Politicians on the left are tripping over each other to find the right words to help them get as many votes as possible. Some of those words from Democratic Party candidates for the presidential nomination U.S. Senator Bernie Sanders and former governor of Maryland Martin O’Malley include the term “Glass-Steagall” and its return.
Front runner for the Democrats Hillary Clinton is pushing a different approach that she says is more comprehensive than a revived Glass-Steagall that would split up very large banks.
Her many initiatives are detailed in full on her website. One of them concerns fines for bank executives. As president, Clinton says she would hold “executives accountable when they are responsible for their subordinates’ misconduct.”
As for those firms hit with large “penalties” for violating the law, Clinton thinks “those fines should cut into the bonuses of the executives who were responsible for or should have caught the problem. And when egregious misconduct happens on an executive’s watch, that executive should lose his or her job.”
Some of the other major provisions of her plan would:
- Impose a risk fee on the largest firms that would be “based on their size and their risk of contributing to another financial crisis;”
- Close the Volcker Rule’s “hedge fund loophole;”
- Give regulators more authority to force “overly complex or risky firms to reorganize, downsize, or break apart;”
- Enhance transparency and reduce volatility in the “shadow banking system,” including “certain activities of hedge funds, investment banks, and other non-bank financial companies;”
- And impose a financial transaction tax on high-frequency trading.
To get some perspective, FTF News asked some key industry observers to review her Wall Street reform plan. (I will give equal time to the Republican candidates in future postings.)
“I like her view on linking bonuses to regulatory fines,” says Mary Kopczynski, CEO of the regulatory change management company, 8of9 Consulting, based in New York. “I think that should be the case not just for the executives, but everyone. What the banks need is a better culture of compliance and if there are direct financial incentives tied to that culture of compliance, then you will see a greater commitment from top to bottom,” she adds.
“Some of her other suggestions I shrug my shoulders at because banks are already exiting businesses because the capital charges are too high,” Kopczynski says. “So the talk about adding a ‘risk fee’ is unnecessary because there are so many existing risk fees like the Basel Accords.”
In contrast, Anshuman Jaswal, PhD, a senior analyst with Celent, a division of Oliver Wyman, gives Hillary’s plan a thumb’s up.
“The Clinton plan has many strong measures in place to make the financial system safer and more accountable,” Jaswal says. “There will always be some elements that might be argued against, but her overall approach to reforming the financial market place is pragmatic and sound.”
Kevin McPartland, principal, market structure and technology, Greenwich Associates, give the Clinton’s positions a mixed review. “It was written to reinforce the anti-Wall Street feeling on Main Street,” McPartland says. “And while some of the theories make sense, such aligning management incentives for reasonable risk taking, others are solutions in search of a problem, such as the tack on ‘high frequency traders.’ ”
Last, but certainly not least, Larry Doyle, an industry veteran who is also the muckraking author of “In Bed With Wall Street: How Bankers, Regulators and Politicians Conspire to Cripple Our Global Economy,” published last year by Palgrave Macmillan, offered some clear opinions about her plan.
“Hillary Clinton is a master politician,” Doyle says. “She is tacking left here with this plan so as to make sure that Bernie Sanders does not build further momentum with the liberal base of the Democratic Party. She makes some very salient points with her plan, but throughout her career she has never been one to seriously take on Wall Street. I do not expect that to change now especially given that Clinton’s largest contributors are the big banks themselves.”
Over the coming months, the ultimate reviewers of her plan will be voters in the primaries and caucuses leading up to the nomination. If voters are swinging left, then they may pay greater attention to the positions of these three on the need for more Wall Street reforms.
It seems, though, that the left and the right need to seriously consider what the next big chapter of financial services reform should be.
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