Presidential candidate Hillary Clinton laid out her purported populist vision of financial services regulation in a position paper entitled Wall Street Should Work for Main Street. According to Ms. Clinton, the Dodd-Frank Wall Street Reform and Consumer Protection Act was a good start to enhance oversight of the financial services industry, but more needs to be done. Among other things, Ms. Clinton also recommended imposing a risk fee on the largest financial institutions. Under her proposal, banks with more than US $50 billion in assets and other financial institutions subject to enhanced oversight would pay a graduated fee each year – with firms with larger amounts of debt and “riskier, short-term forms of debt” paying the highest charges. She also recommended giving regulators the “explicit statutory authorization” to require large financial firms to “reorganize, downsize or break apart” if the firms could not demonstrate they could be managed effectively. Ms. Clinton also called for imposing margin and collateral requirements on repurchase agreements and other securities financing transactions; instituting a “high-frequency tax” on firms trading with“ excessive levels of order cancellations;” ensuring that individuals are held accountable for corporate breaches of law; preventing banks from investing up to 3 percent of their capital in hedge funds (as currently permitted under the so-called “Volcker Rule”); and encouraging other worldwide financial centers to impose regulations as tough as those in the United States – “leveling the playing field for US firms and safeguarding global stability.” Ms. Clinton also expressed her support for the reinstatement of the swaps push-out rule that was mostly eliminated in 2014 as part of a government funding compromise (this rule would have required that banks conduct most derivatives trading outside of federally insured entities or entities with access to the discount window of the Federal Reserve System). Additionally, Ms. Clinton recommended increased funding for the Commodity Futures Trading Commission, Department of Justice and the Securities and Exchange Commission, as well as greater independence for the CFTC and SEC from the appropriations process.
My View: It is easy for politicians to get caught up in the enthusiasm of a campaign and issue proposals and make promises that, in practice, are very hard and impracticable to realize. As Ms. Clinton’s campaign’s chief financial officer, Gary Gensler, had to recognize as chairman of the Commodity Futures Trading Commission, there is even a big difference between enacting purported populist regulations and having such regulations achieve their intended purpose (particularly without unintended consequences) – as evidenced by the steady stream of no-action letters and other forms of guidance the CFTC has had to issue in connection with its Dodd-Frank-instituted regulations to clarify, delay or conform the regulations to reality.