Rick Perry Channels Warren in 'Too Big to Fail' Speech

WASHINGTON — Former Texas Gov. Rick Perry laid out a sweeping financial reform agenda on Wednesday, suggesting he would force the biggest banks to hold even more capital or possibly reinstitute elements of the Glass-Steagall Act.

In a surprisingly forceful speech from Perry, who has said little on the topic prior to this speech, he addressed concerns about "too big to fail" institutions head on, vowing to stop financial bailouts if he wins the White House. He added that government should work harder to "level the playing field" between Wall Street banks and community institutions.

He offered several options to limit the footprint of the biggest banks, touching on the idea of reinstating the Glass-Steagall Act, a Depression-era law separating commercial banking and investment activity, though he stopped short of naming the law directly.

"We could once again require banks to separate their traditional commercial lending and investment banking and related practices," he told attendees at a New York event hosted by the Committee to Unleash Prosperity, which was formed by several conservative economists.

"Alternatively, these large, one-stop-shop banks could be required to hold a significant, additional capital cushion for their trading activities. Who knows? Those banks' shareholders just might convince them to break up into smaller units on their own, in order to unlock the value of their distinct parts."

Perry's comments — whether by design or not — echo a push by Sen. Elizabeth Warren, D-Mass., to reinstate the Glass-Steagall Act. She and former GOP presidential candidate Sen. John McCain, R-Ariz., reintroduced legislation to do just that earlier this month, along with Sens. Maria Cantwell, D-Wash., and Angus King, I-Maine.

Perry also unexpectedly praised a Federal Reserve Board rule finalized last week that would require the largest U.S. banks to face a capital surcharge. Perry urged regulators to strengthen capital requirements even more for those institutions.

"What's smart about this new rule is that it uses a formula to ensure that bigger and more complex banks must maintain larger capital cushions. In that way, the Fed has reduced, but not eliminated, the risk that these banks will someday fail again," he said. "The Federal Reserve and Congress should consider strengthening this rule, to help assure American taxpayers that they won't be on the hook for trillion-dollar bailouts in the future."

The remarks mirror concerns raised by presidential contenders on the left, including Martin O'Malley and Bernie Sanders, who have both criticized the largest financial institutions. Though progressives have been particularly vocal about concerns over "too big to fail," the issue has long crossed partisan lines, such as when Sens. Sherrod Brown, D-Ohio, and David Vitter, R-La., worked together last Congress on a bill to raise capital requirements at the biggest institutions.

Hillary Clinton, the Democratic frontrunner for the White House, meanwhile, has so far stopped short of calling to break up the Wall Street banks. She's likely to face continued pressure from candidates on both sides of the aisle to further toughen her stance on financial regulation.

While Perry tacked to the left on certain elements of his financial reform plan, he had plenty to offer the GOP base in his remarks. He called on Congress to unwind the government-sponsored enterprises and reform the housing finance market.

For now, the GSEs should be required to hold significant capital and raise down payment requirements. The Treasury Department has been "sweeping" earnings from Fannie Mae and Freddie Mac for several years, as the capital held at each is ratcheted down over time.

"In the meantime, the two mortgage giants should maintain strict capital cushions, just like the big banks, and we should phase in a requirement that all loans that they sponsor are accompanied by higher, more responsible down payments," he said.

He also underscored the role the government played in the housing crisis.

"It was Washington regulators who fell asleep at the switch. It was Washington politicians who changed laws that created the housing crisis," he said, arguing that "the roots of the financial crisis can be traced to the 1990s" and President Bill Clinton.

"If Secretary Clinton wants to take credit for the 'Clinton economy,' then she must defend the destructive homeownership policies advocated by her husband that pushed shoddy loans to people who couldn't afford them, and the economic chaos that followed," he said.

In addition, Perry advocated "regulatory breathing room" for digital currencies like Bitcoin and knocked the Dodd-Frank Act for overly complex regulations like the Volcker Rule, a ban on propriety trading, and for the impact the law has had on community banks.

"Dodd-Frank took aim at Wall Street and ended up harming Main Street. And today, community banks are spending more time and money on legal compliance than ever before," he said. "We should exempt community banks, banks run as partnerships, and asset management firms from Dodd-Frank's onerous and excessive regulations."

He also proposed replacing the law's "orderly liquidation authority" for winding down failing banks with a formal bankruptcy process.

Channeling many Republicans in Congress, Perry called for restructuring the Consumer Financial Protection Bureau and putting the agency under the congressional appropriations process.

"The regulations imposed by the CFPB haven't protected consumers, they've made credit cards and checking accounts more expensive," Perry said. "They've also made it harder for community banks to compete and stay in business."