Clinton Dials Up TBTF Rhetoric, Stops Short of Rivals' Volume

WASHINGTON — Democratic presidential front-runner Hillary Clinton joined the ranks of other candidates in calling for additional steps to rein in the largest banks and pursue harsher penalties for malfeasance by individuals at financial services companies.

In an economic policy speech Monday, Clinton staunchly opposed Republicans' continual efforts to unwind the Dodd-Frank Act, saying reforms should go even further to remove risks and bad actors in the financial market. She said she plans to propose more specific reforms in the coming months for dealing with the financial industry.

"While institutions have paid large fines and in some case admitted guilt, too often it has seemed that the human beings responsible get off with limited consequences or none at all, even when they've already pocketed the gains. This is wrong and on my watch it will change," Clinton said during the speech at the New School in Manhattan. "Over the course of this campaign, I will offer plans to rein in excessive risks on Wall Street and ensure that stock markets work for everyday investors, not just high-frequency traders and those with the best or fastest connections."

Yet Clinton, who is widely leading in most polls for the Democratic nomination, appeared to stop short of the more explicit calls by other candidates — including former Maryland Gov. Martin O'Malley and Vermont Gov. Bernie Sanders — to break up the biggest banks.

Instead she vowed to "go beyond Dodd-Frank" to institute reforms to mitigate major firms' risk and complexity, and said concerns are not limited to just commercial banks.

"Too many of our major financial institutions are still too complex and too risky. And the problems are not limited to the big banks that get all the headlines," she said. "Serious risks are emerging from institutions in the so-called shadow banking system including hedge funds, high-frequency traders, nonbank finance companies — so many new kinds of entities which receive little oversight at all."

Analysts had been eager to see how aggressive Clinton would be on financial services issues in the speech in light of the other Democratic candidates taking recent strong views on the big banks.

Each Democrat's position on "too big to fail" and other issues coming out of the crisis may be judged on how closely it aligns with that of Sen. Elizabeth Warren, who recently reintroduced a bill along with Sen. John McCain, R-Ariz., to revive elements of the Glass-Steagall Act. Her bill would require banks to separate their depository institutions from higher-risk businesses.

While Clinton echoed some of the rhetoric criticizing the biggest banks, she appeared to stay clear of some of the stronger proposals of her other Democratic rivals. Just last week, O'Malley released a 10-page proposal that would among other things reinstate Glass-Steagall and increase funding for regulating derivatives.

"The Democratic primary may well come down to … [who] is tougher on Wall Street. Sen. Bernie Sanders already is co-sponsoring legislation to restore Glass-Steagall and O'Malley has previously ripped the biggest banks," Jaret Seiberg, an analyst with Guggenheim Securities, wrote in a research note last week.

"With Sen. Elizabeth Warren pushing a populist message from the sidelines, the Democratic electorate appears to want its pound of flesh from Wall Street. In this environment, it is hard to see how Clinton can take a neutral or nuanced position."

Seiberg said a move by Clinton "into the break-up-the-banks camp would be an ominous sign" since all three Democrats would be in lockstep.

"That would put tremendous pressure on the GOP candidates as we question if any of them want to be seen as friends of Wall Street," he said.

In her speech, Clinton said there were ways to enforce stronger reforms against misconduct in the financial marketplace while still encouraging lending at the community banks. She also called for a separate fund to house the money received from penalizing wrongdoers that would then be directed to "help modernize infrastructure" or be paid directly to taxpayers.

"I will appoint and empower regulators who understand that 'too-big-to-fail' is still too big a problem. We'll ensure that no firm is too complex to manage or oversee and we will prosecute individuals as well as firms when they commit fraud or other criminal wrongdoing," she said. "And when the government recovers money from corporations or individuals for harming the public it should go into a separate trust fund to benefit the public. … Now, reform is never easy, but we've done it before in our country and we have to get it right this time. And yes, we need leadership from the financial industry and across the private sector to join with us."