Leading Democratic presidential candidate Hillary Clinton has proposed measures including new taxes for trading to hold Wall Street accountable and reduce risk of the failure of big banks and investor firms.
"The bottom line is that we can never allow what happened in 2008 to happen again. Just as important, we have to encourage Wall Street to live up to its proper role in our economy -- helping Main Street grow and prosper," Clinton wrote in an op-ed as she rolled out her new set of proposals.
"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," she said, adding that her plan would 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," she said.
Clinton said it is 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, she said. This is criminal behavior, yet the individuals responsible often get off with limited consequences -- or none at all.
"I want to change that," she said. Following her announcement, The Wall Street Journal said the proposed tax on excessive order cancellations could increase costs, cause market problems.
"We don’t yet know how good or bad this idea could be," said James Angel, a professor at Georgetown University who studies markets.
"If it's a small fee used for regulatory purposes, then it could be helpful. If it’s more than that, it could end up costing investors more money in a lot of ways," he told The Wall Street Journal.
By focusing on cancellations, Clinton runs the risk of hampering an important function of trading firms called market making, according to some market observers, the daily noted.
Bill Harts, spokesman for the high-frequency trading group Modern Markets Initiative, said taxes on trading firms will only "end up costing investors more" because market- makers would have to widen their spreads to accommodate the added cost.
Widening the spread means increasing the difference between offered buy and sell order, which would make it more expensive for buyers and sellers of stocks, Harts said. However, Joseph Saluzzi from Themis Trading said Clinton's proposal — if designed correctly — could reduce some of the "noise" in the markets.
"You’re not going to fix things with a tax, but there should be a fee that helps distribute the costs more fairly and reduces manipulative activity," he told Journal.