(Bloomberg View) — Seven years after the financial crash, despite important new rules signed into law by President Barack Obama, there are risks in our financial system that could still cause another crisis. Banks have paid billions of dollars in fines, but few executives have been held personally accountable.
"Too big to fail" is still too big a problem. Regulators don't have all the tools and support they need to protect our economy. To prevent irresponsible behavior on Wall Street from ever again devastating Main Street, we need more accountability, tougher rules and stronger enforcement. I have a plan to build on the progress we've made under President Obama and do just that.
In the years before the crash, as financial firms piled risk upon risk, regulators in Washington either couldn't or wouldn't keep up. Top regulators under President George W. Bush posed for a picture literally taking a chain saw to banking rules. Before the crisis hit, as a senator from New York, I was alarmed by this gathering storm, and called for addressing the risks of derivatives, cracking down on abusive subprime mortgages and improving financial oversight.
Unfortunately, the Bush administration and Republicans in Congress largely ignored calls for reform. The result cost 9 million Americans their jobs, drove 5 million families out of their homes and wiped out more than $13 trillion in household wealth.
Thanks to President Obama's leadership and the determination and sacrifice of the American people, we've worked our way out of that ditch and put our economy on sounder footing. Now we have to keep going.
First, it's time for more accountability on Wall Street. Stories of misconduct in the financial industry are shocking — like HSBC allowing drug cartels to launder money or five major banks pleading guilty to felony charges for conspiring to manipulate currency exchange rates. This is criminal behavior, yet the individuals responsible often get off with limited consequences — or none at all. I want to change that.
People who commit serious financial crimes should face serious consequences, including big fines, disbarment from working in the industry and the prospect of imprisonment. As president, I will seek to extend the statute of limitations for major financial crimes, enhance whistle-blower rewards, and increase resources for the Department of Justice and the Securities and Exchange Commission to investigate and prosecute individuals.
We should also hold financial executives accountable for egregious misconduct by their subordinates. They need to lose their bonuses and, in some cases, their jobs.
Second, I will work with Congress and independent regulators to rein in the complexity and riskiness of major financial institutions. The Dodd-Frank Act that President Obama signed after the crisis has already made important reforms, but there's more to do.
One serious approach being advocated is to pass an updated Glass-Steagall Act, separating commercial and investment banking, to reduce the size of the banks and the risk of a taxpayer bailout. I certainly share the goal of never having to bail out the big banks again, but I prefer the path of tackling the most dangerous risks in a different way.
To start, I will propose a new fee on risk that would discourage the type of excessive leverage and short-term borrowing that could spark another crisis. We should also strengthen and enforce the Volcker Rule so banks can't make risky and speculative trading bets with taxpayer-backed money. And if a bank suffers losses that threaten its overall financial health, senior managers should lose some or all of their bonus compensation. That will ensure that financial executives have skin in the game and a real incentive to avoid reckless risk- taking.
My plan would also give regulators the authority they need to reorganize, downsize or even break apart any financial institution that is too large and risky to be managed effectively. It is a comprehensive and flexible approach. It allows regulators to adapt to changing markets and help ensure that large financial firms never pose a danger to our entire economy.
We've learned the hard way that there's no substitute for tough, empowered regulators with the resources and support to do their job. That's why I've supported Wisconsin Senator Tammy Baldwin's bill to restore trust in government and slow Wall Street's revolving door. We need to find the best, most independent-minded people for these important regulatory jobs — people who will put consumers and everyday investors ahead of the industries and institutions they're supposed to oversee.
