WASHINGTON -- Hillary Clinton on Thursday detailed her plans to crack down on risky Wall Street behavior, delivering a sharp rebuke to the Obama administration's weak enforcement against financial misconduct. But the candidate stopped short of calling to break up big banks, drawing a clear contrast with Sen. Bernie Sanders (I-Vt.), her top rival for the Democratic presidential nomination.
The core of Clinton's plan, provided to The Huffington Post by a campaign aide, involves closing loopholes in the 2010 Dodd-Frank Wall Street reform bill and strengthening enforcement against financial wrongdoing. Clinton does not call for the ambitious restructuring of the banking sector that many in the Democratic Party's activist base are clamoring for. Nevertheless, her reform package draws a marked contrast with the Obama administration's poor enforcement of financial fraud statutes and its general acquiescence to big banks on matters of policy. In at least one case, Clinton directly calls to roll back a major Obama administration concession to Wall Street.
"Clinton understands the financial crisis showed how irresponsible behavior in the financial sector can devastate the lives of Americans across the country," the aide said in an emailed statement.
The plan would stiffen penalties for financial fraud and require financial executives to personally foot the bill for settlements and fines levied against their companies. Clinton would also curtail the use of so-called "deferred prosecution agreements," in which the Department of Justice agrees to call off its investigation if a company makes important operational changes -- effectively letting wrongdoers off the hook. No major Wall Street executive has been prosecuted for financial crime under President Barack Obama and his two attorneys general, Eric Holder and Loretta Lynch.
But the bulk of Clinton's plan focuses on closing holes that bank lobbyists have drilled into the 2010 Dodd-Frank Wall Street reform package in the years since its original conception. The bill originally banned federal subsidies for risky derivatives trading, but Congress reinstated the Wall Street perks late last year as part of a government funding bill. When Sen. Elizabeth Warren (D-Mass.) attempted to bring down the funding bill over the subsidies, Obama and JPMorgan Chase CEO Jamie Dimon personally lobbied lawmakers to approve the provision. The plan Clinton announced Thursday would repeal the perks, returning to the original intent of Dodd-Frank.
Clinton would also beef up Dodd-Frank's Volcker Rule, which bans banks that accept federal perks from conducting securities trades for their own accounts. Such speculative bets can be wildly profitable for banks in the short term, while generating tremendous long-term risks that taxpayers can be forced to pay for in a crisis. Dodd-Frank includes a loophole allowing big bank conglomerates to devote a significant amount of money to ownership stakes in hedge funds and private equity projects. Clinton would close that loophole.
The plan also includes a tax on high-frequency trading, a risky practice in which computers process thousands of trades by the microsecond to cash in on small price movements in stocks and other securities. High-frequency trading was widely blamed for the so-called "Flash Crash" of 2010, when stocks mysteriously plummeted, only to recover within a few hours.
Clinton would also remove key regulators at the Commodity Futures Trading Commission and Securities and Exchange Commission from the congressional appropriations process -- a move that would prevent Republicans from holding agency funding hostage to their demands for deregulation.
The Clinton plan's most direct nod to Warren, who largely sets the financial reform agenda for the Democratic Party's base, is an endorsement of the senator's Truth In Settlements Act. Warren's bill would require far more detailed public disclosures about the total effect of corporate settlements on company bottom lines. While government regulators often crow about seemingly huge payouts from banks, accounting details and tax breaks often sharply limit the actual impact on big firms. The Truth in Settlements Act would require a full public accounting of the effects of each settlement. The bill is co-sponsored by Sen. James Lankford (R-Okla.), but has received little support from the GOP majority.
Other parts of Clinton's reform package simply reiterate Obama's regulatory agenda. Clinton calls for a new risk-fee to be applied to the nation's biggest banks, something Obama has previously championed to no avail. Clinton would also grant regulators the authority to break up banks that are too big to fail -- a purely symbolic proposal, since it is already law.
All of Clinton's proposals would reduce systemic risk in the global economy, but they would not directly address the "too big to fail" problem -- the fact that the failure of just one multitrillion-dollar bank can wreak havoc on the global economy. Regulators simply haven't pursued breaking up the banks. Doing so will require legislation.
"We continue to believe Clinton would be one of the better candidates for financial firms, as she is pushing concrete reforms where one can understand the downside risk rather than more radical overhauls," Guggenheim Partners analyst Jaret Seiberg said Thursday in a note to clients analyzing the plan.
Sanders has taken a much harder line on Wall Street, consistently calling to break up the largest financial institutions. But while Clinton's top-line items on executive accountability look like baby steps compared to Sanders' plan, they are baby steps that the Obama administration has refused to take, and could significantly curb bad behavior on Wall Street.
Still, any financial reform agenda faces tremendous political obstacles. As long as Republicans maintain control of either chamber of Congress, they can block any legislative moves on the matter. And a host of Democrats in the House have been willing to vote with Republicans to continue chipping away at Dodd-Frank, rather than patch it up, as Clinton is calling to do.
Clinton has been trying to shake off criticisms that she is too close to Wall Street -- a perception fueled by her husband's support for damaging deregulatory laws that set the stage for the 2008 crash, as well as her own paid speeches to Goldman Sachs and private equity firms in recent years. The strength of her reform plan largely hinges on whether or not she will actually support better enforcement -- an easy thing to back away from once in office. Nonetheless, her implicit criticism of Obama's weak financial oversight will enhance her reputation among the party's activist base.
This story has been updated to incorporate additional details about Clinton's plan.
Shahien Nasiripour contributed reporting.