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Bernie Sanders’s comments to the New York Daily News about banks are at the center of the biggest fight in the Democratic presidential primary to date.

Sanders has frequently used Wall Street as a cudgel against rival Hillary Clinton, but the muddy interview allowed Clinton to put him on defense over what has been his core strength.

{mosads}It was a surprising turn of events and one that has led to the most bitter stretch yet in the contentious race for the Democratic nomination.

The basic responses the Vermont senator gave to the Daily News’s editorial board gave Clinton an opening.

In the interview, Sanders said he was not sure if the Federal Reserve had the ability to break up the nation’s biggest banks but that he would push that approach through his administration.

“You would determine is that, if a bank is too big to fail, it is too big to exist. And then you have the secretary of treasury and some people who know a lot about this, making that determination,” he said. “If the determination is that Goldman Sachs or JPMorgan Chase is too big to fail, yes, they will be broken up.”

He also struggled to explain how a recent court ruling in favor of insurance company MetLife against financial regulators would affect his ambitious restructuring plans or the broader economic consequences of his approach.

“Any plan to break up the banks would have to answer a lot of practical questions,” said Justin Schardin, acting director of the Financial Regulatory Reform Initiative at the Bipartisan Policy Center. “Where do customers go? If a bank were to have to breakup just on account of size, would you get to keep your bank account?”

Clinton seized on the remarks, which also attracted some media criticism, and painted Sanders as not having a plan to follow through on his ambitious agenda of dismantling the biggest names in finance.

“I think he hadn’t done his homework, and he’d been talking for more than a year about doing things that he obviously hadn’t really studied or understood,” she said on MSNBC’s “Morning Joe” Wednesday.

But as the former secretary of State’s campaign seized on the remarks, backers of Sanders’s approach leapt to his defense, arguing his answers were just fine, particularly taken in context with his more detailed explanations in the past.

Sanders’s campaign issued a statement Wednesday fleshing out his plan to overhaul the financial sector.

And in turn, he questioned whether Clinton was qualified to be president, pushing the primary into is most contentious territory yet. In Wednesday’s interview, Clinton questioned Sanders’s policy credentials but did not explicitly call him unqualified for the presidency.

The fight over Wall Street had already led to some of the most personal battles between Clinton and Sanders.

Most pointedly, Sanders has regularly criticized Clinton for giving paid speeches to Goldman Sachs and has pressed for her to release transcripts of those remarks. It’s an argument that has appeared to bother Clinton, who has snapped back at the Sanders campaign. 

The current fight has consumed much of the week, with both campaigns sending emails to reporters that highlight critiques of the senator’s interview or ensuing defenses.

Clinton and her supporters have regularly ripped Sanders’s proposals, saying they have no realistic chance of becoming law.

Retired Rep. Barney Frank (D-Mass.), a Clinton backer and the Frank in the Dodd-Frank financial reform law, repeatedly has argued that Sanders has a record of not delivering.

He pounced on Sanders’s remarks Wednesday.

“It was very disappointing because it wasn’t coherent,” he said on MSNBC. “He conflated several issues.” 

Monday’s interview drilled down on how Sanders would deliver on one of his central campaign promises; that within his first year in office, he will have identified and broken up the nation’s “too big to fail” banks.

When pressed on exactly how he would do that, Sanders said he would do it either through legislation or by directing his Treasury secretary to identify such institutions.

But it’s not quite that simple.

Bank breakup legislation has attracted little political traction in Congress. Bills to re-establish the Glass-Steagall barrier between traditional and investment banking, which Sanders supports, have never garnered more than a handful of co-sponsors in recent years.

Using presidential powers to break up banks would also be difficult and potentially impossible to do it within Sanders’s first year in office, as he has promised.

There are effectively two paths to break up financial institutions through the regulators.

One relies on the power of Section 121 of the Dodd-Frank law, and it’s the approach Sanders favors. Under that unused provision of the law, the Federal Reserve has the power to break up financial institutions that pose a “grave threat to the financial stability of the United States.”

But there are significant hurdles to clear. Under this approach, Sanders would have to convince a host of independent financial regulators to break up the big banks. Some of those officials would be Sanders appointees — assuming the Senate confirms them — and others could be holdovers from the Obama administration, which has repeatedly resisted calls to break up banks.

The Fed can only use these powers if its seven-member Board of Governors agrees to take the action and two-thirds of the Financial Stability Oversight Council (FSOC) also agrees with it. That panel includes top regulators from across the government, including the Treasury secretary and the heads of all major financial regulators.

“The Treasury secretary has some authority as chairman of the FSOC, but it’s not something that can be done unilaterally,” said Schardin.

The other approach would see bank regulators break up large financial institutions if they determined those banks would not be able to unwind themselves when facing collapse.

Under Dodd-Frank, large banks are required to provide “living wills” to regulators, which details how they could be dissolved easily. If they cannot convince regulators they have a credible plan in place, then the government can step in and break them up.

So far, no banks have convinced regulators they have a credible plan. Regulators threw out every original submission from the banks in 2014 and ordered new ones.

The Fed and Federal Deposit Insurance Corporation are currently reviewing a revised set and are likely to announce a verdict soon. But even if they were to find some of those plans still not credible, breaking up any banks would still likely take years.

Under Dodd-Frank, banks with noncredible living wills would have two years to get their business in order before regulators could begin taking them apart. Fed officials have told lawmakers they are prepared to use this power if necessary but that it is years away from being a reality.

Tags Banks Bernie Sanders Hillary Clinton Wall Street
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