Bailouts of big U.S. banks and financial-sector regulations were focal points during this week’s Republican presidential debate, underscoring the continuing resonance of those themes in the 2016 race.
Charlotte-based Bank of America and its multibillion-dollar federal bailout provided ample debate material Tuesday night, as candidates weighed in on whether they would again rescue large banks as in the 2008 financial crisis.
Some candidates participating in the Milwaukee debate said they would not.
“Let me be clear: I would not bail them out,” said Sen. Ted Cruz of Texas.
It marked the latest debate in which Wall Street has taken a leading role. Similar topics have emerged at earlier presidential debates of both parties.
Let me be clear: I would not bail them out.
Sen. Ted Cruz, R-Texas
One recurring theme during the debates has been the 2010 Dodd-Frank financial overhaul legislation, which created new regulations for banks.
Supporters of Dodd-Frank say its benefits include safeguards for borrowers against abusive lending practices. But critics argue that the law’s regulations hurt banks, especially smaller ones, by saddling them with additional costs to comply with the new rules. Repealing it has become a frequent promise of GOP candidates for president and for congressional seats.
Since Dodd-Frank was enacted, “1,590 community banks have gone out of business,” candidate Carly Fiorina, former CEO of Hewlett-Packard, said Tuesday.
The two-hour debate, co-sponsored by Fox Business Network and The Wall Street Journal, turned to Bank of America when moderator Neil Cavuto mentioned the bank in a question directed at Cruz. The topic was bank bailouts.
“Are you saying, sir, that if Bank of America were on the brink, you would let it fail?” Cavuto asked.
“Yes,” Cruz said, adding later: “Let me be clear. I would not bail them out.”
The Troubled Asset Relief Program, the bailout known as TARP, was enacted by Congress and signed by then-President Bush to help lenders recover from the financial crisis. Bank of America repaid its $45 billion in bailout funds in 2009.
We shouldn’t have another financial crisis. What we ought to do is raise the capital requirements so banks aren’t too big to fail.
Former Florida Gov. Jeb Bush
Ohio Gov. John Kasich argued in Tuesday’s debate that banks should be reserving enough capital that investors will pressure them not to take risks that could lead to a failure in the first place.
Cruz interjected: “What would you do if the bank was failing?”
“I would not let the people who put their money in there all go down. … I would figure out how to separate those people who can afford it versus those people, or the hardworking folks who put … money in those institutions,” Kasich said, prompting boos from the audience.
Former Florida Gov. Jeb Bush was also asked whether he would bail out banks in another crisis.
“We shouldn’t have another financial crisis,” he said. “What we ought to do is raise the capital requirements so banks aren’t too big to fail.”
We have actually created a category of systemically important institutions, and these banks go around bragging about it.
Florida Sen. Marco Rubio
Banks are already having to comply with higher capital requirements than they did before the crisis.
Retired neurosurgeon Ben Carson said he would not support busting up big banks. “I don’t want to go in and tear anybody down,” Carson said. “I mean, that doesn’t help us. But what does help us is to stop tinkering around the edges and fix the actual problems that exist that are creating the problem in the first place.”
On Dodd-Frank, Bush and Florida Sen. Marco Rubio said the law has not ended the problem of banks being too big to fail.
Rubio said Dodd-Frank needs to be repealed as soon as possible.
“We have actually created a category of systemically important institutions, and these banks go around bragging about it,” he said. “You know what they say to people with a wink and a nod? ‘We are so big, we are so important that, if we get in trouble, the government has to bail us out.’ ”
Wall Street has a problem: They know the (Consumer Financial Protection Bureau) is working.
Sen. Elizabeth Warren, D-Mass.
Not all of Dodd-Frank’s rules have been written, and banks continue to lobby heavily to influence the rule-writing.
Candidates also expressed concerns Tuesday about the act’s impact on community banks – echoing a theme heard in Charlotte, where leaders of smaller banks cite rising compliance costs as a concern. Bush, pointing to an unnamed bank in Iowa, said compliance costs rose from $100,000 to $600,000 in a two-year period because of Dodd-Frank.
Fiorina described the act as “a great example of how socialism starts.” She also criticized the Consumer Financial Protection Bureau, which was created by the act, as “a vast bureaucracy with no congressional oversight.”
Massachusetts Sen. Elizabeth Warren, a Democrat credited as an architect of the bureau, defended it Tuesday on Twitter: “Wall Street has a problem: They know the CFPB is working, and it’s incredibly popular with the families it helps.”
Candidate Donald Trump was not asked any questions about banks or regulations on Tuesday and did not offer his views. Trump has previously said he supports repealing Dodd-Frank.
Where Democrats stand
Among the leading Democratic candidates, Hillary Clinton has said she supports the implementation of Dodd-Frank, including the Consumer Financial Protection Bureau.
Vermont Sen. Bernie Sanders and former Maryland Gov. Martin O’Malley have vowed to re-impose past restrictions and break up the biggest banks. Sanders maintains Wall Street has a corrupting influence on Washington, and O’Malley has pointedly assailed Clinton for being too cozy with big banks.
Those ties include Clinton and her husband’s acceptance of speaking fees. Of the $150 million in speaking fees that have flowed to the Clintons since 2001, Wall Street ponied up more than $8 million in such fees.
On Tuesday, Clinton commented about banking regulations on Twitter: “It’s not the big banks that need relief from Washington – it’s small banks and small businesses,” she tweeted.
Confidence in banks low
It’s not clear how much the Wall Street rhetoric will resonate with voters on either side. But a Gallup poll from June shows confidence in U.S. banks among Americans remains low seven years after the financial crisis.
The percentage of Americans expressing a great deal or quite a lot of confidence in banks stood at 28 percent. That’s 12 points lower than the average over the past 39 years. But it’s up from a 21 percent post-crisis low in 2012.