Note: This is one of two stories examining what would happen depending on the outcome of the presidential election. The second article can be found here.
WASHINGTON — With just three weeks left to go until Election Day, polls show that Democrat Hillary Clinton appears increasingly likely to win the presidential race, a victory that would represent a decidedly mixed bag for bankers.
On the one hand, Clinton is a known quantity on Wall Street and elsewhere, a centrist politician who has both defended the Dodd-Frank Act while acknowledging that community banks need regulatory relief. Despite pressure during her primary battles with Sen. Bernie Sanders, D-Vt., Clinton did not embrace calls to break up the big banks, but instead focused on targeting the shadow banking system. She also has a detailed series of plans on banking policy and other critical issues, in comparison to her opponent Donald Trump, who has eschewed providing any specifics.
Yet the overarching question for banks in a possible Clinton administration is how much influence the progressive wing of the party is going to have — and whether the former Secretary of State can find common cause with it and Republicans that are still expected to at least control the House.
"Would it be the speaking-to-Wall-Street-off-the-record Clinton or would it be more of the Clinton that has to cater to the younger base in order to pull in the Bernie [Sanders] voters" that shapes policy as president, asked Lindsey Piegza, chief economist at Stifel Nicolaus & Co. I would suspect that she would tend to err on the left."
Following is a guide to what a future Clinton administration could look like:
Clinton has a stable of well-known policy experts advising her and a long rolodex of financial industry experts, but one of her biggest challenges could be making nominations that can both pass muster with the progressive wing of her party and Republicans in the Senate.
Much will depend on the outcome of the Senate races and whether Democrats are able to successfully retake the chamber. Even if they do, however, the chamber will still be split roughly in half, giving Republicans a significant voice in any nomination battle.
"How big an issue is it going to be for progressives to demand liberal nominees? If that is the case, will you be able to get all the Democrats to vote for [a liberal nominee] if all the Republicans are going to oppose it?" said Justin Schardin, director of the Bipartisan Policy Center's Financial Regulatory Reform Initiative.
Republicans have made a point of stymieing President Obama's nominees in recent years. The Senate Banking Committee, which is in charge of confirming appointments to top jobs with the federal regulators, hasn't confirmed a presidential nominee, including two Federal Reserve Board seats, since 2014. While much of the Republican opposition may be directed at Obama, Clinton may encounter the same dynamic.
Sen. John McCain, R-Ariz., told a radio station on Monday that Republicans would oppose any Supreme Court nominee put up by Clinton if she wins the White House. While regulators are not typically as contentious as high court nominees, the comments were not a good sign for possible bipartisan harmony following the election.
Clinton, moreover, has to worry about what progressives in her own party think. Sen. Elizabeth Warren, D-Mass., one of the leaders of the progressive movement, has a prime perch on the Senate Banking Committee to weigh in on any Clinton nominations. She has already adopted a "personnel is policy" mantra, opposing Obama nominees she thought were too close to Wall Street.
In a recent letter, Warren asked Obama to demote Securities and Exchange Commission Chair Mary Jo White — who has ties to the Clintons — for not promulgating a rule forcing corporations to disclose their political contributions.
According to recent leaks by Wikileaks, the Clinton campaign has also allegedly been in close contact with Warren regarding possible appointments. During a March primary debate, Clinton also pledged to keep Warren in the loop.
"I will very much reach out and ask for advice as to who should be appointed, including to Senator Warren and many of my other former colleagues in the Senate," Clinton said.
No matter which party controls the Senate, nominations are likely to be a significant battleground for Clinton when it comes to financial policy.
"The next president's seriousness on many economic issues will be judged by whether people with a proven track record of challenging powerful corporate interests are appointed to key positions," wrote the Progressive Change Campaign Committee, a grassroots organization aiming to shape Clinton's agenda, in an August statement.
However, the industry will likely try to sway Clinton to pick nominees familiar with the industry rather than their political track record.
"I just hope that the next president does the right thing and drops the rhetoric about Democrat and Republican" said JP Morgan Chief Executive Officer Jamie Dimon during a recent banking conference. "Put people in those jobs who are deeply experienced in those matters."
Clinton has consistently said she will defend the Dodd-Frank Act if elected president, but she has resisted efforts to be tougher on commercial banks. Instead, she has said that recent reforms did not adequately regulate the "shadow banking sector."
"Shadow banks" is a very broad term that includes hedge funds, investment banks and other non-bank financial companies, but the widespread nature of the definition is indicative of how opaque the non-bank financial sector is.
Federal regulators agree it warrants more attention.
"I am pretty sure that the big goals of reform regulation that took place in Dodd-Frank have been achieved in certain areas, namely the banking sector… We in the United States do not have very good measures for dealing with the nonbanking sector — the shadow banking system," Fed Vice Chair Stanley Fischer said in a recent speech.
Clinton has outlined a plan to increase shadow bank transparency, including enhancing public disclosure, regulatory reporting requirements and increasing regulations for short-term borrowing and securities financing. Such plans will be up to the SEC and Commodity Futures Trading Commission to carry out.
"One of the main goals of Dodd-Frank was to capture systemic risk outside of the banking system and I think we have to say its success in achieving that goal has been mixed," said Schardin.
Clinton plans to introduce legislation that would take the SEC and CFTC out of the appropriations process, a move that is likely to spark Republican opposition. The House GOP is pushing for a bill that would do the opposite, subjecting all currently independently-funded financial regulators to the appropriations process.
"Having your own funding source inherently gives you the capacity to act more aggressively than being subject to congressional appropriations which creates all potential" for legislative riders that can hamstring the agency's, said Aaron Klein, a fellow in economic studies at the Brookings Institution.
Clinton also said she plans to give the Financial Stability Oversight Council more power to oversee the shadow banking system.
"Currently, FSOC has the authority to name and shame regulators who are not promulgating regulation in their bailiwick…but one intransient regulator can tell the FSOC thanks but no thanks," said Klein, who added that FSOC could be given the authority to compel a regulator to write a rule.
"Too big to fail"
One of the biggest criticisms of Dodd-Frank is that six years after its enactment, financial firms are still so big that if they run into trouble the government may be forced to bail them out.
One of the hallmarks of Sen. Bernie Sanders' campaign was breaking up the Wall Street banks and reinstating Glass-Steagall, a depression era law that separated commercial and investment banking.
While the Democratic platform calls for a modern version of Glass-Steagall, Clinton has never endorsed such a plan, even though doing so would have undoubtedly helped her during her primary fight. She's argued that Dodd-Frank gives regulators the power to break up the banks if necessary.
"We have Dodd-Frank. We can use it to break up the banks, if that's appropriate," Clinton said during a February debate with Sanders.
"I've made it very clear that no bank is too big to fail, no executive too powerful to jail, and because of Dodd-Frank, we now have in law a process that the president, the Federal Reserve, and others can use if any bank poses a systemic risk," said Clinton in another debate.
Clinton has also called for imposing a "risk fee" on all banks with more than $50 billion of assets, with higher charges for institutions that rely heavily on short-term funding. President Obama has sought a similar measure in each budget for the past several years without success.
Additionally, Clinton wants to increase the statute of limitations for financial crimes, a move meant to combat the idea that some banks are "too big to jail" and eliminate what she sees as a loophole in the Volcker Rule that allows banks to invest up to 3% of their capital in private equity and hedge funds.
Community bank relief
For a Democrat, Clinton has taken a surprising interest in regulatory relief for community banks and credit unions, laying out a detailed plan that offers far more specifics than Trump's general call to place a temporary moratorium on all new regulations.
Gene Sperling, a Clinton campaign adviser and former director of the National Economic Council and assistant to the president for economic policy in the Clinton and Obama administrations, said last week that "regulation is something that you look at with a common sense view of what the costs and the benefits are."
"I think you are going to see someone who is going to really push for regulatory simplicity where it can be done safely on [the] small business side," said Sperling. "I think it is going to be a common sense approach."
In late August, Clinton unveiled a fact sheet that called for simplifying capital requirements for small institutions with less than $10 billion of assets, streamlining reporting requirements so that call reports and other data requests aren't overly burdensome, and expanding the safe harbor for "qualified mortgages."
Clinton also says she wants to avoid duplicative and unnecessary exams for smaller institutions as well as ensure regulators detail when small banks and credit unions are exempt from a particular regulation.
"As President, I will also make a major push to empower small businesses and entrepreneurs, with new national initiatives to cut red tape at every level and expand access to credit, especially through community banks and credit unions," Clinton said in prepared remarks for an August speech.