NEW YORK (Reuters) - U.S. presidential candidate Hillary Clinton toughened her stance against Wall Street on Monday, vowing to tighten oversight of the financial industry and warning of serious risks in the “shadow banking” industry.
In her first major economic speech of the 2016 election campaign, Clinton assailed financial institutions in detailed terms as she pledged to cut the income gap and spur wage growth for ordinary Americans.
The Democratic front-runner stopped short of calling for the break-up of big banks as some liberal Democrats have sought. Clinton has no plans to reinstate the Glass-Steagall Act to split commercial banks from their investment operations, Clinton economic adviser Alan Blinder told Reuters.
Nevertheless, Clinton said that if elected in November next year, she would appoint strict overseers to ensure that financial firms never again indulge in the kind of risky behavior that helped cause the 2008 banking crash.
Speaking at a liberal university in Manhattan’s Greenwich Village, Clinton, a former secretary of state, devoted an unexpectedly large part of her address to Wall Street.
Teresa Ghilarducci, a labor economist at The New School who has been informally advising Clinton’s campaign, said her remarks on Wall Street ended up being lengthier than a draft circulated on Friday suggested they would be.
Clinton laid out a series of ideas that could change the way major U.S. companies work. She said banks cannot be “too big to fail.”
She is the clear favorite to win the Democratic nomination but faces a growing challenge from Bernie Sanders, a U.S. senator from Vermont and self-styled socialist who is drawing large crowds at campaign events.
Despite the tough talk, Clinton and her husband, Bill Clinton, have deep ties with Wall Street. Both have been paid handsomely for speeches by major financial and investment institutions in recent years, including Goldman Sachs and the Carlyle Group.
Hillary Clinton, who represented Wall Street as part of her constituency when she was a U.S. senator for New York, has long looked to people in the financial industry for large campaign donations.
Clinton said in her speech: “As we all know in the years before the crash, financial firms piled risk upon risk, and regulators in Washington either couldn’t or wouldn’t keep up.”
“I will appoint and empower regulators who understand
that too big to fail is still too big a problem,” Clinton said.
She proposed encouraging firms to share profits with employees, and ensuring that stock buybacks are not used just for an immediate boost in share prices. She said she will announce a plan to reform capital gains taxes to reward longer-term investments and not just quick trades.
Clinton hinted at tougher regulations to stem the serious risks she said were emerging from the shadow banking system of hedge funds, high-frequency traders and non-bank finance companies. She referred to them as “so many new kinds of entities which receive little oversight at all.”
Clinton put the fight for higher wages for working Americans at the heart of her economic agenda, although her speech was short on specific policy proposals.
“The measure of our success must be how much incomes rise for hard-working families, not just for successful CEOs and money managers,” she said.
Clinton will unveil more specifics in a series of speeches in coming weeks. Liberal Democrats flirting with Sanders are seeking more details of her plans on increasing the minimum wage, creating universal preschool and investing in infrastructure.
Putting some meat on the bones of her economic policy could divert focus from issues dragging on Clinton’s popularity, including a controversy over her use of a private email account while she was America’s top diplomat.
Clinton said Americans lose job protection and benefits when they rely too heavily on sources of income like renting out a spare room, designing websites or driving their own car.
Those remarks were read as directed at start-ups such as car ride company Uber and short-term home rental service Airbnb, which are part of the “sharing economy.”
Republican presidential hopeful Rand Paul described Clinton as out of touch.
“America shouldn’t take advice on the sharing economy from someone who has been driven around in a limo for 30 years,”
Paul wrote on Twitter.
Clinton promised to “go beyond” the 2010 Dodd-Frank law that imposed stronger regulations on the financial industry after the banking crash.
But Blinder, an economist who advises Clinton’s campaign, told Reuters the candidate did not plan to resurrect the
Glass-Steagall Act that split commercial banks from their investment operations.
The act, passed during the Great Depression in the 1930s, was repealed in 1999.
Both Sanders and Maryland Governor Martin O’Malley, another Democratic challenger for the nomination, support breaking up the banks.
In her speech, Clinton called out HSBC bank for allowing itself to be used to launder drug money from Latin America in a case that led to the bank receiving a record $1.92 billion in fines in the United States.
An HSBC spokesman, Rob Sherman, replied to her comment.
“As the Justice Department has noted, we have made material progress toward meeting the most stringent compliance standards imposed to date upon a global financial institution,” he said.
Clinton also criticized other big banks that have pleaded guilty to conspiring to manipulate currency exchange and
Her speech earned an unusual level of approval from a group that represents the Democratic Party’s liberal wing. The Progressive Change Campaign Committee, a political fundraising group, said the address “shows that Clinton sees a rising economic populist tide in our politics and wants to be part of it.”
Additional reporting by Amanda Becker; Writing by Alistair Bell; Editing by Howard Goller