WASHINGTON — Democratic presidential hopefuls Bernie Sanders and Hillary Clinton both emphasized during a late Thursday debate that they are prepared to break up megabanks that pose a systemic risk to the U.S. economy, but also stressed there are differences in how they approach "too big to fail."
While Clinton said she supports the framework set forth by the Dodd-Frank Act, Sanders said he would take a blunter approach by establishing a hard cap on asset size and leaving it up to the banks to figure out how to get smaller.
"What the government should say is, 'You are too big to fail, you have got to be a certain size,' and that the banks have got to figure out what they have to sell off," Sanders said. "I don't know that it is appropriate for the department of the Treasury to be making those decisions."
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Federal Deposit Insurance Corp. officials fielded tough questions Thursday about how they have wielded the resolution planning powers given to them by the Dodd-Frank Act.
April 14 -
Democratic presidential hopeful Hillary Clinton has made reining in the shadow banking system a focal point of her campaign platform, but there are fears that doing so could come with a high price tag for the U.S. economy.
April 6 -
The "too big to fail" debate raises a critical question that is seldom asked, much less answered: Do megabanks serve a critical function that justifies their undeniable risk to the financial system?
March 8 -
In a speech in New York City, Sanders vowed to remove the ability of the Federal Reserve to pay interest to banks for their excess reserves, turn the credit rating agencies into nonprofits, allow the U.S. Postal Service to offer bank products, and cap ATM fees and interest rates for loans.
January 5
Sanders has said that if elected, he would have the Treasury secretary draw up a list of financial institutions that would need a government bailout if they became insolvent. He would then require those banks to downsize.
"I don't need Dodd-Frank to tell me that we need to break up these banks ... when you have six financial institution equal to 58% of the GDP of this country, they are just too big," Sanders said.
But Clinton said she supports the more nuanced Dodd-Frank approach to addressing systemically important financial institutions through higher regulatory requirements and an iterative process for banks to simplify or shrink themselves.
"I have been talking about what we should be doing under Dodd-Frank. ... Dodd-Frank sets forth the approach that needs to be taken," Clinton said.
She added that it "has to be the judgment of the regulators" whether the government tells banks what assets they have to sell off or leaves it up to the institutions themselves.
Under Dodd-Frank, the largest banks with U.S. operations are required to submit annual plans on how they could be broken up if they were to fail. The Federal Reserve Board and the Federal Deposit Insurance Corp. grade those plans and communicate to the banks whether they are feasible or not. If the banks fail to make satisfactory adjustments, they face higher regulatory requirements and could be forced to engage in divestitures of assets.
On Wednesday, the Federal Reserve Board and the Federal Deposit Insurance Corp. gave failing grades to the most recent submissions of five out of eight domestic big banks. During the debate, Clinton said she would "absolutely" force the banks to start selling off assets if they failed the test if she was president and they could not quickly fix their problems.
"I have been standing up and saying continuously, we have the law – we've got to execute it," Clinton said.
She added that she would appoint regulators "who are tough enough and ready enough to break up any bank that fails the test under Dodd-Frank."
