Sounds like Wall Street analyst are getting nervous of Bernie Sanders’ speech and stance on Wall Street reform…
WASHINGTON – During his speech this week on his plan to end “too big to fail,” Sen. Bernie Sanders worked his followers into a frenzy, leaving them chanting “break them up, break them up” by the end.
And no wonder. The Vermont lawmaker excoriated Wall Street, specifically blaming large commercial banks for the financial crisis, and making it sound relatively easy to dismantle them if he wins office.
“Within the first 100 days of my administration, I will require the secretary of the Treasury Department to establish a ‘too big to fail’ list of commercial banks, shadow banks and insurance companies whose failure would pose a catastrophic risk to the United States economy without a taxpayer bailout,” Sanders said. “Within one year, my administration will break these institutions up so that they no longer pose a grave threat to the economy as authorized under Section 121 of the Dodd-Frank Act.”
In theory, this sounds like a solid plan. It doesn’t require congressional approval, since Dodd-Frank is already law, and the statute gives the Fed broad authority to force risky institutions to divest themselves of assets or off-balance-sheet items.
But in practice, this is cuckoo. There is more likelihood that I will be eaten by a great white shark while eating lunch at my desk than of this plan ever being enacted. Here’s why:
Let’s take as a given that Sanders is elected president. This in itself is an improbable hurdle for Sanders to overcome, given that he is polling behind Democratic presidential front-runner Hillary Clinton and would likely lose to a GOP candidate even if he did prevail in a primary contest. But 2016 is a weird election season, and stranger things have probably happened (though none immediately spring to mind).
So Sanders takes office in January 2017 and has his Treasury secretary, as promised, draw up a list of “too big to fail” banks and nonbanks, which presumably include institutions like JPMorgan Chase, Citigroup and Bank of America. And then he sets about breaking them up.
Here’s the first problem. Section 121 of Dodd-Frank requires a vote from the Fed that such institutions pose a “grave threat to the financial stability of the United States,” and a further vote from two-thirds of the Financial Stability Oversight Council. That means Sanders needs four of the seven Fed governors to go along with this plan, and seven of the 10 voting FSOC members to approve it. And that is just not going to happen.