Dick Bove: Bernie Sanders' Wall Street reform plans are uninformed, ridiculous
Sanders' view of banking 'simply does not square with reality'
Recently, Sen. Bernie Sanders, I-VT, unveiled his plans for completely reforming several significant tenets of the country’s financial system.
Included among the Democratic Presidential hopeful’s proposals was breaking up the country’s largest banks due to the impact their failure could have on the economy, holding individuals responsible for the criminal actions of financial institutions, transforming for-profit credit ratings agencies into non-profit entities to ensure objectivity, and enacting widespread reform of the Federal Reserve system.
While many, including some commenters on HousingWire, celebrated Sanders’ plans, one financial observer says Sanders’ view of the country’s financial system “simply does not square with reality.”
In a note sent Thursday to clients, Richard Bove, vice president of equity research at Rafferty Capital Markets, said that Sanders plans are actually anti-consumer and show a complete lack of understanding of how banking works in this country.
“While there are a number of extreme concepts in the Senator’s proposals what strikes me most is lack of comprehension as to how the system works but his commitment to fixing what he does not understand,” Bove told clients, adding that Sanders isn’t the only Presidential candidate to display a dearth of understanding about the U.S. banking system.
“While he is the most extreme in his concepts, my reading of the statements of other candidates show the same lack of understanding of the U.S. financial system as the Vermont Senator displays,” Bove continued. “This is not good. Someone should at least know what they are talking about before suggesting mammoth change.”
Bove takes issue with a number of Sanders’ proposals; including Sanders claim that “if a bank is too big to fail, it is too big to exist.”
As part of his financial reform plans, Sanders suggested breaking up the country’s largest banks “so that they no longer pose a grave threat” to the country’s economy.
Bove writes that this plan would harm consumers, not help them.
“The Senator wants to break-up the structure of the financial industry returning it to smaller units,” Bove writes.
“As part of this adjustment, he wants investment and traditional banking to split apart,” he continues. “This is clearly an anti-consumer proposal since banking has proven to be a scale business and by eliminating scale the Senator’s proposal would force prices higher. Additionally, it would make American industry less competitive globally because small financial companies generally have higher funding costs than big companies.”
Sanders also spoke earlier this week about the Federal Reserve, which has become one of his favorite targets of late. Sanders also recently criticized the Federal Reserve, its decision-making and its policies in an editorial published by the New York Times.
But Bove takes issues with Sanders’ claims about the Federal Reserve and his plans to reform it.
“The Senator is also very unhappy with the Federal Reserve,” Bove writes.
“He wants a new structure under which the Fed is more responsive to the American people. This sounds like putting the Fed under the control of Congress,” Bove continues. “Further, Senator Sanders wants to force banks to pay the Fed a fee on the deposits that are placed in that organization.”
Bove said that these proposals show that Sanders does not understand the new banking rules that require banks to put money into highly liquid assets.
“His proposals are likely to create turmoil in the markets as money is pulled from the Fed and placed in bank vaults, which is allowable,” Bove writes.
“This would lower money supply forcing the Fed to sell off its assets destabilizing the markets,” he continues. “The alternative would be for the Fed to print money rapidly to offset the loss in bank deposits. This is dangerous thinking on his part because he clearly has no understanding of how the financial system is structured.”
Sanders also proposed that the United States Postal Service begin offering some banking services, a plan which was initially floated in 2014 by the USPS's Office of the Inspector General, which suggested that by allowing the post office to offer banking services, it could help communities that are currently underserved by banks.
Count Bove among those not in favor of this plan.
“In effect, the United States government would run a banking company making loans and covering loan losses,” Bove said of this plan. “This is pure socialism.”
Bove said that because Sanders plans are so far afield, the likelihood of any of them coming to fruition is “remote” at best. “Congress is not likely to open another major debate on banking without some crisis suggesting that the system needs more regulation,” Bove concludes.
(Image above courtesy of Juli Hansen / Shutterstock.com)