After his widely panned sit-down interview with New York Daily News editorial board, a few writers have concluded that even though it may be one of his signature campaign issues, Bernie Sanders has no real clue how he would go about breaking up Wall Street’s biggest banks. “Sanders appeared to reveal a damning lack of understanding of the exact regulatory statutes, laws, and powers he and a cooperative Congress could use to break up ‘too big to fail’ banks during the first year of his administration, an oft-repeated promise in his stump speeches,” Tina Nguyen wrote at Vanity Fair on Tuesday. Talking Points Memo reported that Sanders “struggled to detail how he would break-up the big banks and move toward a ‘moral economy.’ ”

Indeed, Sanders’ answers on financial reform were a bit vague and may have sounded outright incomprehensible to someone who hasn’t been following the issue closely. Take this exchange, on busting up America’s financial giants:

Daily News: How do you go about doing it?

Sanders: How you go about doing it is having legislation passed, or giving the authority to the secretary of treasury to determine, under Dodd-Frank, that these banks are a danger to the economy over the problem of too-big-to-fail.

Daily News: But do you think that the Fed, now, has that authority?

Sanders: Well, I don’t know if the Fed has it. But I think the administration can have it.

Daily News: How? How does a President turn to JPMorgan Chase, or have the Treasury turn to any of those banks and say, “Now you must do X, Y and Z?”

Sanders: Well, you do have authority under the Dodd-Frank legislation to do that, make that determination.

Daily News: You do, just by Federal Reserve fiat, you do?

Sanders: Yeah. Well, I believe you do.

Sanders isn’t exactly relaying his thoughts with pointillist precision here. But it’s unfair to conclude that the man simply doesn’t know what he’s talking about. His response, while a bit clipped, was basically coherent, and is entirely in keeping with what he laid out in a policy speech in January. Sanders wants to pass legislation that breaks up financial institutions he considers too big to fail—preferrably a modernized version of the late Glass-Steagall Act, which separated commercial and investment banking. Given the challenges he may face in Congress, however, the senator from Vermont has also outlined a plan to cut the banks down to size through administrative fiat. It involves using Section 121 of the Dodd-Frank Act, which gives a board of regulators including the head of the Federal Reserve and the treasury secretary the power to order large financial institutions to shrink if they pose a “grave threat to the financial stability of the United States.” Suffice to say, it’s not clear that his plan would survive a court challenge. And given the time it would take to appoint enough amenable regulators, he almost certainly couldn’t pull it off within a year, as he’s promised. But it’s a concrete plan.

In fact, the problem with Sanders’ approach to Wall Street regulation is that he’s too focused on breaking up the banks—so much so that he’s pinning his hopes on regulatory schemes of dubious legality, to the exclusion of equally important issues. The Clinton campaign often criticizes Sanders for failing to address the shadow banking sector—the vast network of financial firms that, while not technically banks, act a lot like them, and which played a central role in the 2008 crisis. But even on the issue of the banks themselves, Sanders is oddly myopic.

As Federal Reserve Bank of Minneapolis President Neel Kashkari recently outlined, there are (at least) three broad ways you can try to deal with the issue of “too big to fail.” First, you can deal with the “big” part and just break them up, either through an approach like Glass-Steagall’s, or perhaps by simply capping their total assets. (The latter would probably be more effective, since pure investment banks can get plenty large. Remember Lehman Brothers?) There are advantages to this approach. The failure of a small- or medium-size bank is probably less likely to pose an existential risk to the global economy, and as a side benefit, you might create some extra competition in the market for financial services while reducing the political power of individual institutions (though probably not the financial sector as a whole).



But the biggest problem with just breaking up JPMorgan and Bank of America and calling it a day is that downsized banks are still perfectly capable of taking stupid risks and failing. And if enough of them go bust at once, it can create systemic problems. For instance, the 1980s savings and loan crisis, which involved the failure of more than 1,000 small thrifts, ended up costing U.S. taxpayers some $124 billion and likely damaged the economy. That’s why many financial reform advocates—most notably Anat Admati and Martin Hellwig—have argued that instead of shrinking banks, we should make them fail-proof by keeping them from borrowing too much. The most direct way to do that is through dramatically higher capital requirements, which force banks to fund more of their business through things like cash from retained profits and selling stock, rather than debt. (The less your bank is fueled by borrowing, the less likely it is to go bust if your loans and other investments go sour.) Dodd-Frank already raised capital requirements for the largest financial firms, but many think the government should go much further.

Finally, you can also try to reduce risk in the financial markets by simply taxing it, since making it expensive to borrow an obscene amount and leverage up your bets should encourage banks to do less of it. This is basically Clinton’s preferred method, and while it might be the lightest-touch approach of the three, the way that financial institutions have slimmed down to avoid Dodd-Frank’s regulatory requirements suggests it could be very effective. Plus, it has the advantage of directly addressing risk instead of size. Too-big-to-fail isn’t quite such a problem if you don’t have to worry about the fail part.



Now, personally, I suspect that Sanders would love the idea of higher capital requirements. Ditto for taxing leverage. There’d certainly be nothing stopping him from pairing them with the new Glass-Steagall bill he so desires. (Why pick just one flavor of financial regulation when you can have two or more?) But I’ve never seen him mention either idea, much less engage meaningfully with them. Instead, he focuses monomaniacally on outright breaking up the banks, which contributes to the sense that his understanding of these issues, on the specific policy level, doesn’t go very deep beyond campaign sloganeering. That honestly might not be a problem for him in the White House—Sanders clearly has a powerful moral position about the need to rein in Wall Street, and if he has good advisers, I’m sure he’ll listen when they lay out the various options for doing it. But for now, the candidate’s tunnel vision makes it a little hard to take him seriously on the issue.

Read more Slate coverage of the Democratic primary.

