Hillary Clinton: My plan to avoid another Wall St crash

Democratic presidential candidate Hillary Clinton. Photo / AP

More accountability, tougher rules and stronger enforcement is needed, writes Hillary Clinton.

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 behaviour on Wall St from ever again devastating Main St, we need more accountability, tougher rules and stronger enforcement.

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 sub-prime mortgages and improving financial oversight. Unfortunately, the Bush Administration and Republicans in Congress largely ignored calls for reform.

The result cost nine million Americans their jobs, drove five million families out of their homes and wiped out more than US$13 trillion in household wealth.

First, it's time for more accountability on Wall St. Stories of misconduct in the financial industry are shocking.

Yet the individuals responsible often get off with limited consequences - or none at all. I want to change that.

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 reorganise, 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.

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.

Third, we need a comprehensive strategy to reduce risk everywhere in the financial system. After all, many of the firms at the heart of the crash in 2008, like Lehman Brothers, Bear Stearns and AIG, were not traditional banks.

I'll push for stronger oversight of the "shadow banking" sector, which includes certain activities of hedge funds, investment banks and other non-bank finance companies.

Fourth, we need to ensure that everyday investors and consumers can trust that our financial markets work for them - and not just for insiders with the most sophisticated, specialised and fastest connections.

That is why we should impose a tax on the high-frequency trading that makes our markets less stable and less fair. And we should reform the rules that govern our stock markets to ensure equal access to markets and information, increase transparency, and minimise conflicts of interest.

Finally, I will veto any legislation that would weaken Dodd-Frank. We can't go back to the days when Wall St could write its own rules.

The bottom line is that we can never allow what happened in 2008 to happen again. Just as important, we have to encourage Wall St to live up to its proper role in our economy - helping Main St grow and prosper.

With strong rules of the road and smart incentives, the financial industry can help more young families buy that first home, make it possible for entrepreneurs to create new small businesses and support hardworking Americans saving for retirement.

We'll create good-paying jobs, raise incomes and help families afford a middle-class life, with less speculation and more growth - growth that's strong, fair and long-term. That's what I'm fighting for in my campaign, and that's what I'll do as President. Bloomberg