Republicans are taking a page from Bernie Sanders’ playbook to hit Hillary Clinton on a topic where they think they can hurt her: Wall Street.
The party approved a platform Monday that ostensibly calls for breaking up the biggest banks by reinstating the Glass- Steagall Act, a Depression-era law that long kept commercial lending separate from activities such as securities underwriting and trading. A shift from prior Republican agendas, the move shows the degree to which both parties are convinced that beating up the finance industry is a winning strategy. And it means Wall Street probably will have to continue playing defense on policy issues in Washington no matter who wins the White House in November.
The Glass-Steagall inclusion also highlights an aspect of Clinton’s record where Sanders showed she’s vulnerable. During his primary campaign against her, the Vermont senator railed against speaking fees Clinton received from firms such as Goldman Sachs Group Inc., while arguing that the only way to deal with banks that he believed had grown too powerful was to dismantle them. Donald Trump, the Republican’s presumptive presidential nominee, is likely to keep on deploying similar tactics, according to analysts.
“This is one of the prongs that Trump will continue to use, the message that Clinton doesn’t want to break up the big banks, but she is being sent to D.C. to protect them,“ said Isaac Boltansky of Compass Point Research & Trading.
The 58-page Republican platform, adopted at the national convention in Cleveland, doesn’t say how the party would bring back Glass-Steagall or lay out specific reasons why doing would be good policy. When the law was scrapped in 1999 under President Bill Clinton, almost all Republican lawmakers who were in Congress at the time supported the decision. Banks such as Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. became one-stop-shopping financial behemoths in the years that followed.
“This has the potential to do damage to a really critical industry,” said Tony Fratto, a partner at Hamilton Place Strategies, which has represented banks, and a former assistant Treasury secretary in President George W. Bush’s administration. “The Republicans are making a mistake by choosing this populist route and it isn’t going to pay off. This is embarrassing.”
The platform also includes other finance-related proposals, including overhauling the Obama administration’s Dodd-Frank Act and providing regulatory relief for community banks. In addition, Republicans outlined their views on reforming the U.S. housing industry, including Fannie Mae and Freddie Mac.
After the 2008 financial crisis, there have been various attempts to revive Glass-Steagall as a way of reducing the number of mega-banks and separating their riskier activities, like trading derivatives, from more traditional banking businesses, like lending money and taking deposits.
One of the most aggressive advocates for bringing Glass- Steagall back has been Senator Elizabeth Warren, who Clinton has vetted as a possible vice president. Warren has sponsored legislation that would reinstate the law, but it hasn’t advanced in a Republican-controlled Congress. Bank of America and JPMorgan have also faced proposals from shareholders and calls from securities analysts to separate business lines or shrink in size. Neither bank has heeded those demands.
Party platforms are mostly symbolic, having no formal hold over presidential candidates and often including policies that aren’t ever pursued. But Wall Street might consider it slightly alarming that both Republicans and Democrats have now given a nod to Glass-Steagall in their 2016 agendas.
“It is a mistake to simply dismiss the news as a cynical political ploy,” said Brian Gardner, an analyst at Keefe Bruyette & Woods. “The risk that Congress will reinstate Glass- Steagall is higher than many investors appreciate.“
In the Democrats’ draft platform issued earlier this month, the party called for “an updated and modernized version of Glass-Steagall and breaking up too-big-to-fail financial institutions that pose a systemic risk to the stability of our economy.” The draft reflected the influence of Sanders and other progressives by taking a sharp leftward turn from prior years.
Clinton has had a tough time crafting a middle ground on issues involving the finance industry. She’s faced scrutiny over her ties to firms such as Goldman Sachs, which paid her more than $600,000 for giving speeches. The bank’s employees have also donated to her campaign.
And while Clinton has tried to shore up her standing with the liberal base of the Democratic party by calling for tougher rules for Wall Street, she’s stopped short of calling for a return of Glass-Steagall. Her own plan to stiffen oversight focuses on issues ranging from high-speed trading to derivatives to criminal penalties for bank executives. She has also pledged to defend Dodd-Frank.