Clinton versus Sanders: How their Wall Street plans stack up

Wall Street has become the biggest fault line in the race between Bernie Sanders and Hillary Clinton for the Democratic presidential nomination.

Sanders, who frequently critiques “greed” and “recklessness” in high finance, has put forward a plan that would fundamentally remake Wall Street, effectively bringing an end to some of its biggest names. 

{mosads}Clinton has similarly pledged to take on Wall Street, but pushed a more nuanced approach. She argues her proposal is more effective because it directly targets the industry sectors that have escaped the heightened regulations brought on by the Dodd-Frank financial reform law.

Here’s how their two plans stack up.

Big banks 

When it comes to the biggest names in finance, Sanders is direct: break them up. 

A central plank of Sanders’s Wall Street plan would order regulators, in his first year in office, to break up “too big to fail” banks and set a cap size for financial institutions going forward. 

He also calls for the return of the Glass-Steagall Act, a Depression-era law that was repealed in the 1990s that has maintained a firewall between traditional and investment banking.

Clinton’s plan is more precise. She would impose a “risk fee” on the biggest financial institutions that would increase as banks get bigger. Under her plan, regulators would have the power to break up large financial institutions, but would not be ordered to do so. 

She has also vowed to close a “loophole” in the “Volcker Rule,” a central piece of Dodd-Frank that bars banks from making risky trades with money guaranteed by the federal government through deposit insurance. Clinton argues that the fact that banks can still invest in hedge funds is a lingering risk not addressed by Volcker, and has pledged to address it.

Taxes

Both candidates include new taxes on the financial sector in their plans.

Sanders wants to pay for free public college tuition with a new financial transaction tax, which would be a fee added to any trade of a financial product like stocks, bonds, or derivatives.

Clinton does not go as far. Her plan would impose a new tax aimed at curbing high frequency trading — the lightning quick, computer-driven trades that some believe make the financial system less stable. Her plan would assess a new tax on excessive order cancellations, since high frequency traders frequently open and close a massive amount of orders in a trading day to gain an edge.

In addition, she has vowed to close the “carried interest” loophole frequently relied upon by hedge funds to lower their tax bill. Sanders has called for the same as a senator, but has not made it a focal point of his presidential run.

Shadow banking

One of the central splits between Clinton and Sanders is over the issue of “shadow banking.” 

The term refers to financial activity that falls outside the reach of traditional banks and, as a result, their regulators. Clinton has pledged to increase regulations on nonbanks, saying they played a key role in the financial collapse and pose the greatest risk to the system going forward. 

Clinton has used her shadow banking plan to try and attack Sanders, arguing his broad bank break-up initiative misses the mark on that front. Sanders in turn has swung back, arguing that by cracking down on the banks, his plan would help limit shadow banks’ access to borrowed funds.

Sanders also has said that shadow banks that are “too big to fail” would be addressed under his plan, but his proposal does not address smaller non-bank institutions that do not rely on funds borrowed from large banks.

Regulators 

One thing the two candidates agree on is the need for tougher regulation of the financial sector. 

Liberal activists to this day remain angry that no major bank executive faced criminal charges over the financial crisis. Nearly every major financial institution paid billions of dollars in fines, but the Obama administration did not go after individuals.

Both Clinton and Sanders address that grievance in their plans. Clinton explicitly seeks to make it easier to go after individual executives, upping whistleblower rewards and extending the statute of limitations on building cases. She has vowed to put in place tough regulators to protect Dodd-Frank, and to cut into executive bonuses if a financial institution breaks the law or suffers large losses from risky investments.

Sander has said no one with experience on Wall Street would be welcome in his administration. He has cosponsored legislation that would bar financial institutions from paying out bonuses to top executives that leave for government jobs, in an effort to curb the “revolving door.”

Beyond their policy plans, much of the feuding between the candidates centers on Clinton’s ties to Wall Street, which she once represented as a senator from New York. 

Sanders has ripped Clinton for taking millions from the financial sector, both in campaign donations and in speaking fees. He argues that Clinton’s coziness with the sector disqualifies her as a progressive.

In response, Clinton has pointed out that President Obama accepted Wall Street donations when he ran for president in 2008. She has also noted that she has given speeches to a wide range of groups, not just big banks.