One year ago, the idea of a Bernie Sanders presidency was laughable. Hillary Clinton may not be the perfect candidate, the thinking it went, but there was no way Democrats would vote for a septuagenarian, democratic-socialist, Independent Senator from Vermont; one who honeymooned in the Soviet Union and offered support for the socialist Sandinistas in Nicaragua in the 1980s. There was no way that guy had any chance to be president, right?
As of the most recent polls, the Real Clear Politics average has Sanders polling at 25% nationally. Yes, that’s nearly 20 points behind Clinton, but for a candidate with views that are on the fringe of American politics, it is remarkable. Yes, it is still a long shot, but the American political world now has to reckon with the fact that a Sanders administration is possible.
If there’s one group that is likely shaking at the thought of a President Sanders, it’s the financial sector.
“The biggest impact would be Jamie Dimon’s and Lloyd Blankfein’s bonus,” said Dennis Kelleher, founder of non-partisan advocacy group Better Markets. “And that is not a net loss to the country.”
Kelleher points out that Sanders’ plan for Wall Street regulation isn’t particularly detailed, at least compared to those put forward by Clinton and Martin O’Malley. Still, his campaign website makes his primary objective clear:
So yes, if you’re an executive at one of those huge financial institutions—and according to legislation Sanders introduced in May, there are actually eight such firms: Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State Street and Wells Fargo—you aren’t going to like what Sanders is proposing. He wants to break up your company and take a bite into your firm’s bottom line, which most likely means a lower bonus.
But for the financial services industry as a whole, Kelleher thinks this might actually be good. He points to the breakup of Standard Oil in the early 20th century as an example. After the monopoly was broken up, “we ended up with six to eight big regional oil companies,” he notes, which led to increased competition and lower prices. He also points to the breakup of big phone companies, which in turned spurred competition that led to mobile technologies and all the smart phone wonders we have today.
Remember, the financial sector is more than just the 10 biggest banks, and the 10 biggest banks are made up of far more people than just their top executives. So while there is no doubt that Sanders’ plan of putting a cap on the size of any given bank (perhaps tied to a firm’s assets as a percentage of GDP) would be bad for those at the top, it might not spell bad news for the industry as a whole.
Not having such massive banking players at the top could allow smaller, regional banks to compete. Kelleher points out that even for Goldman Sachs, being forced to be smaller may be a blessing in disguise. At their current size, the bureaucracy involved in operating the biggest banks is massive. Kelleher notes that when a bank exceeds $100 billion in assets, the economies of scale actually start to move in the wrong direction and banks become less efficient.
Of course, none of this will stop the banks from complaining, says NYU Stern School of Business Professor Larry White. “There’s nothing that one can think about Bernie Sanders that is going to be interpreted as a good thing from the perspective of the firms that are in or around the financial sector,” he says.
For those at the very top of the pyramid, that may well be true. For the rest of the finance industry, though, perhaps not.