Bernie Sanders And Hillary Clinton Tout Wall Street Reform, But Who's Toughest On Big Banks?

The two top Democratic batters took big swings at Wall Street during the party’s first presidential primary debate Tuesday. Although their rhetoric puts them on the same team, Bernie Sanders and Hillary Clinton are proposing financial reform agendas that show clear philosophical differences.

Senator Bernie Sanders, I-Vt., who identifies as a democratic socialist, has centered his Wall Street reform plan around a simple call to break up the nation’s big banks --specifically, JPMorgan Chase, Citigroup, Goldman Sachs, Bank of America and Morgan Stanley. Although former Secretary of State Clinton has not called for breakups, her agenda spans numerous policies Sanders has yet to address, from expanding whistleblower protections to forcing greater disclosures from hedge funds and private equity firms.

The difference between the two propositions, at least in their current public form, is clear enough at a glance. Excluding some 65 footnotes, Clinton’s plan is roughly 4,800 words -- about ten times the length of Sanders’.

“Their policy proposals have two really different focuses,” said Mike Konczal, a fellow at the progressive Roosevelt Institute, which has shared policy with the two candidates as well as distant rival, former Maryland governor Martin O’Malley. “They seem to reflect their public personas. Hillary’s has a lot of footnotes and wonky details whereas Bernie wants to take on the power of the big banks.”

Marcus Stanley, executive director of the advocacy group Americans for Financial Reform, said the differences are largely conceptual. “Clinton calls for fine-tuning what regulators are doing already and taking them a step further in some cases. The Sanders proposal is more of a change in direction.”

That contrast came to the fore during the debate. Clinton implied her agenda would cover more ground compared to those of Sanders and O’Malley, who each support the reincarnation of Glass-Steagall, a law separating federally insured commercial banking from investment banking that was repealed by legislation signed by Bill Clinton.

Clinton supports giving regulators greater authority to break up banks that pose undue risks to the nation's economic stability, and she would promote an extra surcharge on the largest firms. But in the debate she emphasized her wider agenda: “I want to make sure we're going to cover everybody, not what caused the problem last time, but what could cause it next time.”

Debate moderator Anderson Cooper then turned to Sanders, suggesting that Clinton’s plan was tougher.

“That’s not true,” Sanders replied, reiterating his critique of Wall Street speculation and wrongdoing. “When the Clinton administration, when [former Federal Reserve Chairman] Alan Greenspan said, ‘What a great idea it would be to allow these huge banks to merge,’ Bernie Sanders fought them, and helped lead the opposition to deregulation.”

“Wall Street Regulates Congress”

Clinton has weathered criticism for her close ties to Wall Street and earning millions in speaking fees from the nation’s largest banks. Sanders didn’t open this line of attack, opting instead to outline his philosophy regarding the power of government to rein in a powerful industry with a vast campaign spending warchest.

“In my view, Secretary Clinton ... Congress does not regulate Wall Street. Wall Street regulates Congress,” Sanders said in one of his biggest applause lines. Clinton is also being advised on this topic by a former Goldman Sachs official and a current banking official.

Still, policy experts see similar themes in the two candidates’ plans. “They’ve all said the same thing,” said Dennis Kelleher, president of the financial reform group Better Markets. “If it’s too big to fail, it’s too big to exist.”

Beyond assailing the existence of too-big-to-fail banks, Clinton and Sanders have each proposed a type of financial transaction tax, intended to bring in billions of dollars in revenue from stock-market trading while putting the brakes on controversial high-frequency trading. (Sanders proposal would cut more deeply into trading and raise higher revenues.)

Both candidates have also supported measures to cap Wall Street executive pay -- Clinton would strengthen so-called claw back rules that would restrict compensation when banks run into financial difficulties. Sanders has sponsored legislation that would curb corporate bonuses to executives who leave to work in government.

But not everyone in the Wall Street reform camp is entirely satisfied. Anat Admati, a professor of finance at Stanford’s Graduate School of Business, has long argued that big banks have too little capital to prevent against future financial crises. Though she applauds the candidates’ ends, she questions their means.

“They’re both motivated by the same valid concerns that we must do a better job making the banking system work for the public, but there are some flaws in both their approaches,” Admati, coauthor of the book, “The Bankers New Clothes: What's Wrong with Banking and What to Do about It” said. “Breaking up the banks is just a slogan -- exactly how to do it is the problem."

Kelleher also doubts the plans proposed by Clinton, Sanders and O’Malley could come to fruition. “All three plans rely too much on some magical future Congress passing legislation getting tough on Wall Street.”

Shadow Banking And Beyond

Despite similarities, though, Clinton and O’Malley have released far more comprehensive plans than Sanders. Advocates of a get-tough approach to the financial industry are wondering whether Sanders will unveil a fuller agenda. “Bernie is light on details and scope,” says Kelleher.

Clinton’s lengthy proposals surprised some analysts who wondered how tough she would get on an industry that has provided the lion’s share of her campaign funding.

But Clinton’s plans would strengthen parts of the 2010 Dodd-Frank Act, whose widespread reforms of the banking industry are still being rolled out. In one part of her plan, Clinton would extend the authority to break up overly risky banks -- a power the Federal Reserve already has -- to more regulators.

In another field absent from Sanders’ platform, Clinton would advocate for greater scrutiny of the so-called shadow banking sector, which includes hedge funds, mortgage originators and other institutions that move trillions of dollars every year. “That's where the experts tell me the next potential problem could come from,” Clinton told the debate audience.

Konczal doesn’t think the slimmer plan will hurt Sanders with voters, though. “People don’t know all the wonky banking stuff, but they do know that the biggest banks got bailed out.”