By Amanda Becker
WASHINGTON (Reuters) - A top aide to Democratic presidential front-runner Hillary Clinton on Monday criticized rival Bernie Sanders’ proposals to regulate Wall Street transactions as doing nothing to address some of the riskiest financial institutions.
Sanders, who is Clinton’s chief challenger for the Democratic nomination for the November 2016 election, is set to deliver what his campaign is calling a “major policy address” on Wall Street reform in New York on Tuesday.
Clinton’s chief financial officer, Gary Gensler, a former chair of the Commodity Futures Trading Commission, said in a statement to Reuters that Sanders should use the opportunity to “go beyond his existing plans” to break up too-big-to-fail banks and endorse a risk-based approach that also deals with non-bank financial institutions.
“Any plan to further reform our financial system must include strong provisions to tackle risks in the ‘shadow banking’ sector, which remains a critical source of instability in our economy,” Gensler said.
“This includes certain activities of hedge funds, investment banks like the now-defunct Lehman Brothers, and insurance companies like AIG,” Gensler added, calling them some of the “biggest culprits” of the 2008 financial crisis.
Sanders, a democratic socialist and independent U.S. senator from Vermont who is popular with the Democratic Party’s populist wing, has made reining in Wall Street abuses and reducing income inequality the signature issues of his campaign.
He favors reinstating the Glass-Steagall law passed during the Depression that prohibited commercial banks from engaging in investment banking activities. He also supports breaking up “too-big-to-fail” banks.
Clinton believes that reinstating Glass-Steagall, whose main provisions were repealed in 1999 during the administration of her husband, Bill Clinton, would not address the types of institutions that have cropped up since the law was written in the 1930s.
Clinton has endorsed an approach that would break up large banks that take excessive risk, not on size or function alone.
She has said she would target the shadow-banking system by imposing limits on risky short-term borrowing, reviewing recent regulatory changes to the money market industry for possible holes and enacting new reporting requirements for hedge funds and private equity firms.
Clinton and Sanders have sparred over the best way to curb the risky behavior that caused the 2008 economic downturn, leading to some of the most contentious exchanges in the Democratic primary debates.
(Reporting by Amanda Becker; Editing by Peter Cooney)