Elizabeth Warren isn't running for president, but former Maryland Governor Martin O'Malley is. And in a new policy white paper released today, he takes up key elements of her Wall Street reform agenda, promising a multi-front push to force Wall Street to heel to an even greater extent than the Obama administration effort.
This is an ambitious, multi-pronged agenda that involves:
- Tougher enforcement of existing rules
- New rules to restrain bank size and risk
- Structural reform to the enforcement apparatus
It is, of course, relatively unlikely that much of this will be done. But O'Malley's plan is another signpost of where the progressive wing of the Democratic Party wants to go on bank regulation, and highlights the kind of issues that will be under discussion if a Democrat sits in the White House in 2016.
O'Malley's white paper dwells extensively on the idea that there is a problematic "revolving door" between Wall Street and key regulatory and enforcement agencies. So extensively, in fact, that it leads with a somewhat embarrassing gaffe (Holder in fact took a job with the white-shoe law firm Covington & Burling, which would have made the point just as well):
Oops! 1st footnote in @MartinOMalley's Wall St White Paper is false—drawn from a satirical website HT @Phil_Mattingly pic.twitter.com/oDULhjQ13L— Justin Wolfers (@JustinWolfers) July 9, 2015
In addition to cracking down on revolving doors, O'Malley promises real prosecutions featuring real penalties for banks — and bank executives — who violate the law. He especially wants tougher penalties on "recidivist" banks that commit multiple violations, and calls for greater transparency and restraint in the use of deferred prosecution agreements.
These ideas very closely track an agenda Warren laid out in April, and if implemented they could have a genuinely dramatic impact, for better or for worse. The Obama administration has generally tried to avoid the kind of enforcement actions that would call into question a large bank's continued viability as a business. An administration that did not take this view would be running bigger risks of short-term financial instability, but also doing much more to fundamentally change how business is done.
Smaller, less risky banks
O'Malley's agenda to reduce bank size and bank risk has three main elements.
- He wants to reinstate the old Glass-Steagall rule that prohibited a single company from engaging in both investment banking and commercial banking.
- He wants banks that fail to file credible "living will" documents with the FDIC to be forced to shrink by the Federal Reserve, which would be a considerably more rigorous version of the existing living will regulation.
- He wants banks to fund at most 85 percent of their investments with debt. The Federal Reserve has been pushing bank regulation in the direction of less debt, but O'Malley's plan would go further.
These ideas are less directly under the control of the White House. Most likely, new legislation would be needed to make them happen — though the president can indirectly influence bank debt regulations through his Federal Reserve appointments.
Last, and most clearly requiring legislation, O'Malley proposes a series of structural changes to the way the regulatory apparatus works.
This is a bit of a grab bag of ideas:
- Higher funding for the Securities and Exchange Commission and the Commodities Futures Trade Commission.
- Make the president of the New York Fed a presidential appointee.
- Make the general counsel of the Federal Reserve Board a presidential appointee.
- Make the director of enforcement at the SEC a presidential appointee.
- Require loan brokers to operate according to a "fiduciary standard" under which they are legally required to make a good-faith effort to serve clients' best interests.
In practice, the funding issue here is probably the most important one. Congressional Republicans have been unable to repeal the Obama administration's financial regulatory agenda, but they have substantially undermined it by starving the key regulatory agencies of funds.
The desire to transform some key regulatory jobs into Senate-confirmable presidential appointees, by contrast, seems largely symbolic. The specific individuals currently holding these jobs have attracted criticism from progressives for being too bank-friendly, and O'Malley is essentially signaling agreement with those concerns.