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Sanders' Radical Plan Goes Well Beyond Breaking Up Big Banks

WASHINGTON — Democratic presidential candidate Sen. Bernie Sanders stepped up his attacks Tuesday against the largest banks, going beyond his previous calls to break them up and outlining a series of other policy proposals that would revamp the financial system.

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.

Such a sweeping agenda would be almost impossible to implement given the current makeup of Congress, as it goes too far even for many Democrats. But Sanders couched himself as the true progressive in the presidential election, arguing his main opponent, front-runner Hillary Clinton, does not go far enough.

"Secretary Clinton says we just need to impose a few more fees and regulations on the financial industry. I disagree," Sanders said. "We will no longer tolerate an economy and a political system that has been rigged by Wall Street to benefit the wealthiest Americans in this country at the expense of everyone else."

Following were the key points to Sanders' vision of reform:

Revamping the Fed

As he has in the past, Sanders called for bankers to be banned from serving on the board of directors of the regional Fed banks. Sanders has previously said the Fed presidents should be nominated by the U.S. president and confirmed by the Senate.

But Sanders also went further, targeting the interest the central bank pays banks on excess reserves held at the regional Fed banks. Fed Chair Janet Yellen recently defended the ability to pay interest on reserves, saying it was an essential tool for monetary policy. But Sanders — echoing conservative critics including Sen. Ted Cruz, R-Texas — said it was a mistake.

"The Fed should stop paying financial institutions interest to keep money out of the economy and parked at the Fed," Sanders said. "Instead of paying banks interest on these reserves, the Fed should charge them a fee that could be used to provide affordable loans to small businesses to create hundreds of thousands of jobs."

Credit Rating Agencies

Among his more radical suggestions, Sanders said the credit rating agencies should be turned into nonprofits, blaming their business model for causing the financial crisis.

"Investors would not have bought the risky mortgage backed derivatives that led to the Great Recession if credit agencies did not give these worthless financial products triple-A ratings — ratings that they knew were bogus," Sanders said. "And the reason these risky financial schemes were given such favorable ratings is simple — Wall Street paid for them."

He argued that they should become "nonprofit institutions, independent from Wall Street."

"We cannot have a safe and sound financial system if we cannot trust the credit agencies to accurately rate financial products."

Interest Rates and ATM Fees

Sanders called for hard caps on interest rates for loans and credit cards as well as ATM fees. He said ATM fees should be no more than $2 and that interest rates on credit cards and consumer loans should not exceed 15%.

"It is unacceptable that millions of Americans are paying credit card interest rates of 20% or 30%," Sanders said. "The Bible has a term for this practice. It's called usury. And in 'The Divine Comedy,' Dante reserved a special place in the Seventh Circle of Hell for those who charged people usurious interest rates. Today, we don't need the hellfire and the pitchforks, we don't need the rivers of boiling blood, but we do need a national usury law."

Sanders invoked existing limits on credit unions.

"In 1980, Congress passed legislation to require credit unions to cap interest rates on their loans at no more than 15%," he said. "That law has worked well. Unlike big banks, credit unions did not receive a huge bailout from the taxpayers of this country. It is time to extend this cap to every lender in America."

Given that Congress is controlled by Republicans, it is next to impossible that even if Sanders were elected, itself an unlikely event, he could find the necessary votes to enact such stiff limits.

Allow U.S. Post Offices to Offer Bank Products

Sanders once again touted a plan suggested by the inspector general of the USPS for the cash-strapped system to offer banking products, arguing it was a way to break the hold payday lenders have on many Americans.

"Post offices exist in almost every community in our country," he said. "One important way to provide decent banking opportunities for low-income communities is to allow the U.S. Postal Service to engage in basic banking services, and that's what I will fight for."

Breaking Up the Big Banks

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Comments (7)
We used to tell lawyer jokes, then sensible people learned about bankers (the Global Trillion Dollar Crowd). Now there is no humor, only terror at the usurious, wretched scoundrals who leach the life out of us all. They now make money at every parking meter, grocery store, indeed for medical care and burial services. Yes, break them up subject to laws of decency and equity. $35 late fees....How does that cramp their 16.9% or higher interest earning on the outstanding balance? Payday Lenders, really 300% rates! I AM a capitalist, not a whore.
Posted by Lewis P | Monday, January 11 2016 at 4:41PM ET
Washington DC has ceased (if it ever did) enact legislation prescriptively. As regards TBTF, we would likely have to await a dramatic crisis that some pundits would predict that establishing de jure TBTF seemed prudent. Liquidity to the banking system might dictate otherwise. As unseemly as the consolidation of power and the potential systematic risk of (a) large bank failure(s) might be, pre-crisis legislation or WHO policy is not likely in the cards. Socialisation of the issue and arguments through his use of the bully-pulpit, you have to admit, is interesting, and a health but complicated discussion.
Posted by william.arzt@gmail.com | Friday, January 08 2016 at 12:42PM ET
Hey don't get partisan: Rand Paul (republican) has legislation pending re Audit the Fed.

To be fair to Bernie and not for profit ratings agencies, who can forget the abuses of Moody's: http://wapo.st/1OAVUse
Posted by kiers77 | Wednesday, January 06 2016 at 4:51PM ET
Incredibly naive or incredibly pandering.
Posted by MrPotter | Wednesday, January 06 2016 at 9:18AM ET
So the man who is the supposed champion of community banks wants to add another unfair competitor to the mix, the US Post Office. As to his desire for a cap on interest rates, he and I had this discussion in his office about two years ago and then it was 18%. When I said okay, but you have to cap the credit unions at 12% since they don't pay taxes, that was the end of the conversation. Were his proposals to ever make it through Congress it would spell the death for many true community banks. So much for our champion.
Posted by DYates VT Banker | Wednesday, January 06 2016 at 6:58AM ET
Conventional wisdom will provide a thousand reasons why none of Sanders policy planks will float. Yet, most of them must find a place in our system if it is to remain viable in the long term. Like the attendees at an AA meeting, the players in the financial system have to first admit that they are powerless over the siren call of easy, if dishonest money. They will follow it until the bonus is no more, until everything of value is lost in the mindless acquisition of more, more, more. While Bernie may be accused of daydreaming, at least he is looking to build a better world for the other 99% to live in. Mock him if you must, but recognize that he is on the side of chivalry, and the Quixote remains a hero to many.
Posted by teknoscribe | Tuesday, January 05 2016 at 9:02PM ET
Sure, beak up the big banks and the Fed while you are at it. Let's put Congress in charge of monetary policy and the economy in general because we all know what a great job they have done with everything else so far.
Posted by NWIowa Banker | Tuesday, January 05 2016 at 5:35PM ET
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