Warren makes play to put banking in 2020 spotlight

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Say this for Sen. Elizabeth Warren, she understands how she’s become one of the Democratic Party’s most prominent politicians in the past decade.

In a sweeping plan unveiled Thursday, Warren returned to her political roots: targeting Wall Street. The newest piece was a bill to rein in private equity firms, which understandably drew the most attention from the mainstream media.

But underneath all that was a host of different ideas from Warren, some new and some espoused during the past 10 years, most of which were focused on commercial banks. Here’s a sampling of what she wants to do:

  • Impose new executive compensation rules for bankers.
  • Reverse recent bank regulatory rules that she says weakened capital and liquidity requirements.
  • Create a “21st Century Glass-Steagall Act” designed to rebuild “the wall between commercial banks and investment banks.”
  • Allow the U.S. Postal Service to “partner with local community banks and credit unions to provide access to low-cost, basic banking services.”
  • Create a real-time-payments system backed by the Federal Reserve.

Taken together, Warren’s plan, if enacted, would be the most significant rewrite of banking since the Dodd-Frank Act of 2010.

Though the plan is ambitious, many bankers will shrug at these proposals, noting she’s said much of this before and indeed has built her reputation on battling Wall Street. It’s not new, and her ability to implement significant portions of it — even if she did become president — would be challenging, to say the least.

But such a response would be greatly underestimating Warren, whose landmark proposal became a reality. The idea that launched her into the national spotlight — the creation of what became the Consumer Financial Protection Bureau — was considered far-fetched when she unveiled it in 2007. It was the law just three years later, and she built on that success to join the forefront of Democratic politics.

And while parts of her latest plan — the bits tackling private equity and restoring Glass-Steagall, for example — would require legislation, much of it would not. Warren makes that clear in a post on detailing the plan, noting that the bank executive compensation limits, for example, could be imposed by regulators. Ditto the creation of a real-time-payments system backed by the Fed or even her vision of postal banking.

“Almost ten years ago, Congress directed federal regulators to impose new rules to address the flawed executive compensation incentives at big financial firms,” Warren wrote. “But regulators still haven’t finalized (let alone implemented) a number of those key rules, including one that would claw back bonuses from bankers if their bets went bad in the long run. As President, I will appoint regulators who will actually do their job and finish these rules.”

To be sure, Warren’s banking plan is a gamble. In a crowded field of more than 20 Democratic presidential contenders, Warren needs a way to stand apart. Until now, the 2020 race has been devoid of discussion of banking, focusing on other topics like climate change, immigration and the economy. In the two debates at the end of June, Wall Street was name-checked just a handful of times (and most of those were by Sen. Bernie Sanders).

Critical comments about Wall Street in the first debates signal an unfriendly political environment for banks. Here is a sample of leading candidates’ financial policy views.
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Warren’s latest plan is an effort to change that. If she can successfully get Democrats talking about banking, her chances of winning the nomination increase. The current front-runner, former Vice President Joe Biden, has said little to nothing on the topic and is seen by many as the candidate of the status quo. Aside from Sanders, few others have said as much as Warren. (The private equity bill unveiled Thursday has several Democratic co-sponsors, including Sanders and Sen. Kirsten Gillibrand of New York, another 2020 candidate.)

So will the gamble work? That remains to be seen. An early test could come in two weeks when the Democrats meet again for another round of debates. But given the plethora of candidates and limited time of discussion, it wouldn’t be shocking to see other issues once again take center stage.

The real moment, however, may come after the field of candidates is narrowed to a more manageable size. Presuming Warren makes it to that point in the race — and current polling suggests she will — the conversation is likely to open up, allowing more time for discussion of issues like banking. Warren is staking a big part of her candidacy on that happening, and she stands ready to benefit if it does.

The plan unveiled Thursday is the first step in that direction. It’s unlikely to be the last.

Bankshot is American Banker's column for real-time analysis.

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Election 2020 Regulatory reform Minimum capital requirements Glass-Steagall Dodd-Frank Elizabeth Warren