Another political storm is brewing for big banks

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There’s a terrific part of the 2012 movie "The Dark Knight Rises" when the character Selina Kyle, better known as Catwoman, whispers a warning in Bruce Wayne’s ear:

“There’s a storm coming, Mr. Wayne. You and your friends better batten down the hatches, because when it hits, you’re all gonna wonder how you ever thought you could live so large and leave so little for the rest of us.”

When you talk to big-bank executives and lobbyists in Washington, D.C., there’s a general feeling that they’ve already survived that storm. While the financial crisis of a decade ago left their reputation in tatters, they feel they’ve worked hard to repair the damage. And though they know they are not exactly beloved, many believe they’ve largely succeeded in doing so. To put it simply, the crisis is over and they are no longer at the center of American politics.

But those who think that way may be in for a rude surprise as the 2020 Democratic presidential primary starts in earnest later this year. Roughly a dozen candidates have already declared, and this is the most left-tilting crop of major candidates we’ve seen in a generation or more. The vast majority of them have one thing in common: They hate big banks and want to break them up.

Don’t take my word for it. Asked by a Politico reporter about whether any Democrat could run if they were seen as close to Wall Street, Sen. Sherrod Brown, a presidential candidate and lead Democrat on the Senate Banking Committee, was unequivocal: “I don’t think any of us are thought of as close to Wall Street.” (He eventually conceded Joe Biden might be, but he had to “think about it.”)

Consider this for a moment. In the most crowded, diverse field in decades, there are few Democratic candidates (if any) likely to come to big banks’ defense. Though that may seem an obvious point, it’s a sea change from any recent election. In 2016, Hillary Clinton was a status quo candidate, focused mainly — when it came to banking issues — on defending the Dodd-Frank Act.

Even in 2008, at the height of the financial crisis, candidate Barack Obama was far from a bomb thrower when it came to banks. Though he derided bank executives as “fat cats,” both of his administrations were cautious when it came to actual reform.

Bankers dislike the Dodd-Frank Act, but the law focused on preserving the system we had over seeking something new. There’s a good reason for that. With the financial system in turmoil, Obama was worried about a systemic meltdown. Obama’s regulatory appointees reflected that. Former Treasury Secretary Tim Geithner, who had been president of the Federal Reserve Bank of New York during the crisis, was a man sent to help steer the economy through uncertain waters. He was not the type to embrace radical change.

But the 2020 race is very different. During the current period of relative economic calm, candidates will be far more emboldened to offer radical reforms to the financial system — reforms that could ultimately take hold, depending on how Democrats fare in the elections.

The front-runners are those pushing for a massive overhaul. Sen. Bernie Sanders, I-Vt., who promptly raised $6 million in 24 hours after announcing his candidacy last week, has already introduced legislation to break up the big banks. Sen. Elizabeth Warren, D-Mass., one of Sanders’ biggest rivals, has built her entire political career around being a foe to Wall Street.

And they are not outliers. Brown is a populist who has called for raising capital standards so high on the largest institutions, they would be forced to break themselves up. Even Sen. Kirsten Gillibrand, the Democrat from New York widely considered one of the most moderate of the Democratic candidates, has proposed allowing the U.S. Postal Service into lending — a massive change if enacted, and one bankers strongly oppose.

What all this makes clear is that the moderates — when it comes to banking — have mostly been purged from the Democratic Party. Whoever ends up winning the primary, their platform is likely to be significantly to the left of anything Obama had when he was running in 2008 or 2012.

Moreover, the industry can expect an increase in rhetoric against big banks as the campaign ramps up. As my colleague Victoria Finkle argued, the financial crisis stirred up anger that never really abated, causing the economic crisis to morph into a political one. With President Trump largely quiet when it comes to banking issues, Democratic candidates have an opportunity to tap into that lingering outrage — and make no mistake, they will seize it.

In 2008, though politicians talked tough about banks, they ultimately just wanted to help the financial system survive intact. The next president could want something far different — and, unlike before, the political conditions might actually allow them to put that into action.

Or, to put it in the words of Ms. Kyle, there’s another storm coming. And banks might want to batten down the hatches before it gets here.

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Election 2020 Regulatory reform Policymaking TBTF Donald Trump Elizabeth Warren Bernie Sanders Sherrod Brown