Huntsman Heads South With Wall Street Plan Tougher Than Obama

Thursday, 12 January 2012 06:45 AM

Jon Huntsman Jr.’s third-place finish in New Hampshire gives the former Utah governor at least a little more time to pitch voters on his plan to shrink the biggest U.S. banks.

Huntsman is campaigning for the Jan. 21 Republican primary in South Carolina, a state with a conservative base that President Barack Obama lost by almost nine points in 2008 to Republican Senator John McCain. Huntsman’s Wall Street plan would crack down harder on the banks than some parts of the Dodd-Frank Act Obama pushed through Congress in 2010.

“We need a president who is willing to stand up to those six banks who combined have assets that are equal to two-thirds of our nation’s GDP,” Huntsman said yesterday at an event at the University of South Carolina in Columbia, referring to institutions including Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc.

The Republicans vying to challenge Obama in the general election have all advocated repealing Dodd-Frank, an idea that along with eliminating Obama’s health care plan often elicits applause from Republican audiences. The law among other things created a regulatory structure for over-the-counter derivatives, set new restrictions for Wall Street trading desks and established the Consumer Financial Protection Bureau.

Huntsman, 51, differs from his opponents in his pledge to establish new regulations -- which include capping bank size and imposing a fee on firms deemed too large -- before pushing for Congress to repeal the law.

‘Populist Idea’

His proposal goes further to limit bank size than the Obama administration was willing to go, said former Senator Edward Kaufman, a Delaware Democrat who led a failed push for a similar plan during the congressional debate over Dodd-Frank.

Huntsman would impose a cap on size and leverage, impose added fees and higher deposit insurance premiums on large banks and set capital requirements “far beyond what is envisioned” in the current international Basel agreement, according to the proposal posted on his campaign website.

“This obviously is a populist idea that one normally wouldn’t associate with a Republican,” said Robert Litan, a vice president of research and policy at the Kansas City, Missouri-based Kauffman Foundation. Litan said the idea “would have a lot of unintended and unfavorable consequences” for U.S. banks trying to compete globally.

Other policymakers and academics have called for the breakup of the largest financial institutions, including Simon Johnson, an economics professor at the Massachusetts Institute of Technology, and Federal Reserve Bank of Dallas President Richard Fisher.

‘Systemic Risk’

“To the extent that banks create a systemic risk, I think it makes sense that they be taxed for creating it,” Thomas Cooley, an economics professor at New York University who isn’t advising the campaign, said of Huntsman’s proposal in a phone interview.

Huntsman, who polled nationally in the single digits for months before his 17 percent showing in New Hampshire Jan. 10, said he’s relying on that momentum to help raise money for the next stage of his campaign.

The banking industry, which has weighed in heavily for front-runner Mitt Romney, the former Massachusetts governor, hasn’t been a major source of funds for Huntsman. The campaign, which was $3 million in debt in September, according to the most recent data available, received only $33,750 from employees or political action committees of commercial banks, according to the Center for Responsive Politics. Romney received $542,250 from commercial banks and their employees over that same period.

‘That’s Okay’

“I’m not going to get a whole lot in contributions from Wall Street or the bankers,” Huntsman said with a laugh at yesterday’s town hall. “But that’s okay.”

New Hampshire exit polls showed Huntsman’s base of support was largely outside the Republican Party. Among voters unaffiliated with political parties who took part in the primary, 47 percent of all who voted, 23 percent backed Huntsman, compared with 11 percent of Republicans, according to data compiled by CNN.

Huntsman was in the low single-digits in a poll taken Jan. 5-7 of South Carolina Republicans by Public Policy Polling. That same poll showed Huntsman trailing Stephen Colbert, a comedian who isn’t actually in the race.

‘Politically Salient’

While he may take a hit in campaign fundraising, cracking down on Wall Street may play well with voters in southern states who have “always been suspicious of Wall Street banks,” Kaufman, the former Delaware senator, said.

“I have thought for a long time that it is not just a very important idea, but I also think it’s politically salient to Republicans and Democrats,” he said.

Huntsman’s plan wouldn’t force a breakup of the banks or represent an overreach of regulatory power, said C. Boyden Gray, a policy adviser to Huntsman and the former White House counsel to President George H.W. Bush. Instead it would give the institutions incentives to shrink themselves, while at the same time eliminating any subsidy the largest banks receive in the form of lower cost-of-capital due to any implied guarantee that the government would bail them out in a crisis.

“I don’t think dealing with too-big-to-fail, with all of the dangers it poses and all of the subsidies it encompasses, is an anti-conservative, anti-free market idea,” Gray said in a phone interview.

Obama Opposition

Huntsman’s plan resurrects, at least in part, the Democratic proposal pushed in 2010 by Kaufman and Senator Sherrod Brown, an Ohio Democrat, which would have put a cap on banks’ non-deposit liabilities as a percentage of gross domestic product, as well as a cap on insured deposits held by individual banks. The Obama administration opposed the idea and the Senate rejected it.

The Clearing House Association, an industry group, in November circulated a 45-page study outlining the economic benefits large banks provide to the economy.

“Because of their scope across multiple businesses, their geographic penetration and reach and their balance-sheet size, large banks play a particularly important role in helping companies and asset managers to operate internationally and to access the capital markets,” Paul Saltzman, the president of the group, wrote in a Nov. 7 letter sent with a copy of the study to Federal Reserve Governor Daniel Tarullo.

Winding Down Firms

Dodd-Frank includes new tools for regulators to seize, wind-down and resolve firms whose failure may pose a threat to the entire economy. House and Senate Republicans opposed the resolution authority, saying it gave regulators the authority to arbitrarily seize firms and use taxpayer money during the resolution process.

Supporters of the law contend that the Federal Deposit Insurance Corp., which was given the authority to wind-down failing firms, has established a system and is developing the expertise to handle the failure of a systemically risky firm after years of resolving hundreds of smaller bank failures.

The law also requires any taxpayer dollars used in the process to be repaid by the largest financial firms after the failure.

The new system doesn’t do enough, Huntsman told the crowd in South Carolina yesterday. He said he preferred the large banks of the 1990s, which were a fraction of the asset size of the current six largest firms.

“If they got sick, they could fail and they would not take us down,” Huntsman said.

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