U.S. Markets close in 3 hrs 21 mins

5-minute take: How Trump and Clinton differ on policing Wall Street

Nicole Sinclair
Markets Correspondent

When it comes to Wall Street and Financial regulation, there’s a huge gap between presidential nominees Donald Trump and Hillary Clinton. Yahoo News political consultant Brian Goldsmith joined us to break it down.

“This is clearly a very tender topic, because millions of Americans lost their jobs and or their life savings during the financial crisis in 2008,” Goldsmith said. “And so the political system responded very aggressively.”

President George W. Bush pushed through the Troubled Asset Relief Program (TARP) legislation to rescue the financial system. And soon after he took office, President Barack Obama pushed through Dodd-Frank legislation to reform the financial system.

Dodd-Frank legislation

Dodd-Frank, which was a broad piece of legislation that dealt with everything from the major banks to credit ratings agencies and the derivatives markets, defines the current regulatory landscape.

Goldsmith explained that the law put in place the Financial Stability Oversight Council, which monitors the health of the biggest banks to make sure that they’re not in as vulnerable a position as they were leading up to the 2008 crash. Additionally, it strengthens capital requirements and requires banks to compose a “living will” to describe how they’re going to go out of business in an orderly way if that happens.

The Volcker Rule was also put in place, which says banks can’t engage in certain forms of speculative trading using their customers’ money.

Also, Dodd-Frank put in place the Consumer Financial Protection Bureau (CFPB), which supports a host of consumer protections.  

Donald Trump’s financial regulation outlook

Trump has been vocal about his dislike of Dodd-Frank legislation.

“Trump is really influenced by the school of thought that says that Dodd-Frank is really big and really complicated and imposed so many rules and regulations on the economy that it’s gotten in the way of growth and it’s impeded lending to small businesses,” Goldsmith said. “He’s said that he’s going to all but eliminate Dodd Frank. It’s not clear what he’s going to replace it with.”

His call against breaking up the biggest banks and taxing “carried interest,” which largely benefits hedge fund managers, actually aligns with Clinton. However, he, unlike Clinton, has also proposed to significantly reduce taxes on the wealthiest Americans.

One of his more controversial proposals is to audit the Federal Reserve. Supporters of the Fed believe worry this threatens objectivity in monetary policy.

The tension around Hillary Clinton’s financial regulation views

“Clinton as a candidate for president has been shaped by two powerful forces,” Goldsmith said. “First, she was a senator from New York for eight years. She defended voting for TARP in part because it helped her constituents in the banking industry. But second she faced a ferocious primary challenge from the left and largely on this issue. And so her plan reflects that tension.”

Clinton said she will extend Dodd-Frank to the “shadow banking” sector to include hedge funds, private equity funds, and insurance companies, which in many ways were also responsible for the 2008 crisis. She would institute a risk fee on the banks and would increase taxes on short-term trading, because she wants to encourage investing with a longer view and perspective.

The results of the Dodd-Frank stress tests were announced last week, and all 33 banks reviewed were found to have enough capital to withstand an economic shock. On Wednesday, the Federal Reserve’s stress tests also were overall positive.

For more on the breakdown between the candidates on key policy issues, see below:

5 minute take: What Trump and Clinton would do about Obamacare

Hillary’s and Trump’s trade policies in under 5 minutes

The immigration plans of Trump and Hillary in 5 minutes

The four tax plans for the leading candidates in four minutes