Martin O'Malley

PROTECTING THE AMERICAN DREAM FROM ANOTHER WALL STREET CRASH

Governor O’Malley knows that the American Dream today remains out of reach for too
many families. To attack this problem, it will take a multi-pronged and fearlessly
progressive approach to addressing economic inequality. But the results of any steps we
take as a nation to raise wages, ensure retirement security, and make the dream of
homeownership a reality can be wiped out in an instant by another Wall Street crash.

We need to protect America’s economy. And we can only do it by implementing strong
accountability and structural reforms that build upon the Dodd-Frank Act
and put an end to too-big-to-fail, too-big-to-manage, and too-big-to-jail financial firms.

BRINGING REAL ENFORCEMENT TO WALL STREET—FINALLY

In April, former Fed Chair Paul Volcker wrote: “it is all too clear that the federal
financial regulatory structure is simply inadequate to head off future crises. The structure
that failed us in anticipating and responding to the emergency is largely still in place.”

He is right. While the Dodd-Frank Act made important strides forward in reforming the
financial industry, there is still much work to be done—both in terms of structural AND
accountability reforms.

As President, Governor O’Malley will change the culture of our regulatory and oversight
agencies and departments by immediately pursuing the following reforms to ensure that
Wall Street megabanks don’t get to play by their own set of rules. He will provide real
deterrents to recidivist behavior among the worst actors on Wall Street.

PROPOSAL: FINANCIAL REGULATORS MUST ACTUALLY BE INDEPENDENT

Today, there is a constantly spinning revolving door among both senior and mid-level
regulators and the prosecutors responsible for reining in Wall Street. Senior officials at
the Department of Justice1, Securities and Exchange Commission2, Treasury3 and other
key departments have been deeply entrenched in the industries they are supposed to
regulate, and often return to them after they leave government4., This practice undermines
their independence and public trust in the federal government’s role of independent
arbiter.

Governor O’Malley will:

Ensure Key Political Appointees Are Independent of Wall Street

Over the last seven years, both the SEC and DOJ have fallen down on the job of
enforcement—sending a message to Wall Street that they are “too big to jail.”5 The most
impactful step we can take toward stronger enforcement against Wall Street is appointing
people to key positions who will take financial regulation seriously.

Governor O’Malley will:

Appoint to Key Positions—Attorney General, Assistant Attorney General for the
Criminal Division, SEC Chair—Individuals Committed to Pursuing Criminal
Cases. The DOJ and SEC have been over-reliant on financial settlements for
institutions that break the law. Settlements, even those in the billions of dollars, are
not appropriate deterrents for institutions with trillions of dollars of assets. O’Malley
will require that appointees to key positions have strong backgrounds in fighting for
the public interest and a proven ability to prosecute people who break the law.

Require the SEC Director of the Division of Enforcement to be a Presidential
Appointee, Subject to Senate Confirmation. Currently, the SEC’s Director of
Enforcement is appointed by and entirely at the discretion of the SEC Chair. In
recent years, this has led to the indefensible practice of appointing both Wall Street
in-house lawyers and their outside lawyers to this critical position. O’Malley will
elevate this position to presidential appointee, forcing this critical appointment to face
greater scrutiny and transparency, along with a public vote from the U.S. Senate.

Close the Regulator/Prosecutor Revolving Door

Institute a Three-Year Revolving Door Ban: O’Malley will
bar anyone serving in a financial policy or regulatory role from working for any person or entity appearing
before their former agency/department — or any agency/department they had contact
with when serving the public —for three years. This triples and aggressively strengthens the existing bar, which currently applies only to “senior” officials.

Institute an Additional Three -Year Mandatory Disclosure Rule: In addition to the
above ban, O’Malley also will require these individuals to disclose any direct or
indirect contact with agencies/departments they had contact with for an additional
three years.

Agencies Affected by These Rules: This policy should include people working at the
CommodityFutures Trading Commission (CFTC), Securities Exchange Commission
(SEC), Department of Justice (DOJ) staff that work on economic crimes, Treasury
Department, Federal Deposit Insurance Corporation, Federal Reserve Board, and Office
of the Comptroller of the Currency.

Apply the Same Scrutiny to Key Personnel at the Federal Reserve

The Federal Reserve has played a significant role in slowing downthe implementation
of important financial regulations, including delaying for two years a core part of the
Volcker Rule. Appointing people to key positions at the Fed who take financial crimes
seriously, and requiring them to play a more active role in regulatory decision-making,
will further strengthen enforcement on Wall Street.

Governor O’Malley will:

Require the General Counsel at the Fed to be a Presidential Appointee. The General Counsel wields outsized influence on
the Board, advising theboard on every
major decision. In fact, the current General Counsel is sometimes referred to as the “eighth Fed governor”.
Currently, the Fed’s General Counsel is appointed by the Board of Governors. By increasing transparency
around this appointment, O’Malley will elevate its importance and ensure that only appointees who can prove
independence and a will to work on behalf of the American people—and not the megabanks—will be appointed to it.

Require the President of the New York Fed to be a Presidential Appointee.The President of the New York Fed is the second most powerful member of the Fed. They serve as a permanent member and vice president of the Federal Open Market
Committee, which establishes the Fed’s monetary policy, and oversee the largest reserve bank in terms of asset and volume of activity. Currently, the president is appointed by the regional bank’s board of directors.

Require the Board of Governors to Vote on All Major Decisions, Including Those Regarding Financial Reform. The Fed has entered into multi-billion dollar settlements with financial institutions without its presidentially-appointed and Senate-confirmed
Board of Governors voting to accept them. Decisions not to hold institutions accountable when they break the law should not be left to staff. O’Malley will support requiring the Board to vote on all major enforcement and supervisory decisions made by the Fed.

Proposal: Put More Cops on the Wall Street Beat

Even as the need for oversight has increased, funding for and prioritization of critical
enforcement agencies has lagged.
Today, the CFTC’s staff is virtually unchanged from the 1990’s, despite the fact that their
area of oversight—commodity futures trading—has exploded in size, and that they are
now responsible for regulating over-the-counter derivatives. Given the financial industry’s focus on weakening derivatives regulation, this lack of funding can be seen as a backdoor attempt to water down Dodd-Frank.

Similarly, the SEC’s regulatory role has grown dramatically, while the agency has also been given additional responsibilities under Dodd-Frank. But the agency has been chronically under funded by Republicans in Congress –who propose hundreds of millions of dollars in cuts to the agency every year–and lacks the resources to adequately enforce laws on behalf of investors.

Immediately Double Funding for CFTC and SEC

The CFTC and SEC have been woefully underfunded in recent years. As a result, both
lack the staff and resources to police bad behavior on Wall Street. Fully funding these
two regulators is an investment that will have a large return over time—preventing the
same dangerous or fraudulent financial practices that led to the collapse of the U.S. economy, at a of
cost anywhere from $14 trillionto $22 trillion.

Governor O’Malley will:

Double CFTC Funding from $322 million to $644 million.

Double SEC Funding from $1.7 billion to $3.4 billion.

Elevate Focus on Economic Crimes at the Department of Justice

After the financial meltdown, the DOJ fell down on the job of prosecuting financial institutions for breaking the law.
Rather than focusing on more time-consuming investigations and criminal prosecutions, they resorted to a fines-only approach of
cracking down on law-breaking.

To date, not one single Wall Street CEO has faced criminal prosecution. Compare this stat to the aftermath of the 1980’s savings-and-loan scandal when hundreds of individuals were criminally prosecuted. Changing the culture at the DOJ will start at the top, but it should also be given the resources to investigate and prosecute financial crimes in-house.

Governor O’Malley will:

Create a Stand alone Economic Crimes Division Within DOJ. To increase the
focus on investigating and prosecuting financial crimes, Governor O’Malley will create a
Division of Economic Crimes within DOJ that is separate and co-equal to the
criminal division. The economic crimes unit should have an independent budget and
be staffed with top prosecutors and FBI agents.

Proposal: Enforce Real Penalties for Financial Crimes

Since the financial crash, the federal government’s key
enforcement agencies have sent a message to the largest financial institutions that they are “too big to jail” and somehow
above the laws that apply to every other entity and individual in America.

Rather than enforcing penalties that wouldhave real deterrent effects, enforcement
agencies have relied almost exclusively on settlements as a punitive measure. As a
result, banks like JP Morgan Chase, Citigroup, Barclays, UBS, and the Royal Bank of Scotland
have continued to break the law, because they know that they will face nothing more than a slap on the wrist—
a fine paid with shareholder money that can often be deducted from their taxes as a business expense.

Require Law-Breaking Banks and their Executives to Admit Guilt, Face Real Consequences

While the DOJ and SEC have touted the large fines they’ve imposed on law-breaking
financial institutions, they have failed to implement any policies that will serve as real deterrents against continued law-breaking.

Governor O’Malley will:

Implement Points Accrual System to Crack Down on Recidivist Banks. The
largest banks have been able to get away with repeated violations of the law because
the only penalty they have faced has been fines.Governor O’Malley will implement a
DMV-style points-accrual system that willassign points to infractions committed by
financial firms and their affiliates. He will makethe points system fully transparent—
so that employees, creditors, and investors all have access to them and can
make decisions based off them—and have the end result be the revocation of an entity’s
right to operate. This approach will send a strong message to institutions that racking
up repeat violations of the law will have real consequences, and it will give them the
opportunity to pursue course-correcting measures if they rack up points. To further
deter wrongdoing, each major fraud or violation could come with its own penalties,
through increased FDIC insurance premiums or increased capital requirements.

End Days of “Neither Admit Nor Deny.” The SEC continues to allow institutions
that break the law to avoid admitting guilt for their actions. If an institution commits a major crime or violation of a law, they should be required to admit their guilt, so that they face the full ramifications of parallel civil and criminal proceedings.

Reduce Reliance on and Increase Transparency Around Agreements Made With Law-Breaking Firms

Rather than pursuing criminal cases or even forcing law-breaking institutions to face the full force of
the law, the DOJ and SEC have adopted policies—often decided behind closed-doors—that allow law-
breakers to skirt accountability.

Governor O’Malley will:

Require Transparency Around Use of Deferred Prosecution Agreements (DPA’s) and Non Prosecution Agreements(NPA’S).
Currently, the DOJ relies heavily on deferred prosecution agreements and non-prosecution agreements with companies who have broken the law. Under these agreements, companies are permitted to avoid prosecution and real accountability for illegal activity.

Governor O’Malley will incorporate requirements to change senior leadership as part of DPA agreements, while also requiring the DOJ to submit a report explaining in detail the rationale for any DPA or NPA involving any significant economic crimes, including in particular why a DPA or NPA wasn’t used for similar crimes or matters.

Crack Down on SEC’s Use of Waivers By Requiring Public Votes, Statements on Them.
Currently, the SEC has wide berth to grant “waivers” to financial institutions that break the law.These waivers allow law-breaking banks to avoid penalties that come with their violations. To crack down on this process, I willrequire the SEC to
adopt strict procedures by which they can grant waivers. SEC Commissioners should be required to publicly vote on waivers given to too-big-to-fail banks, and require them to publicly state the reasons for their votes in detail.

BREAKING UP THE TOO-BIG-TO-FAIL, TOO-BIG-TO-MANAGE, TOO-BIG-TO-JAIL FIRMS BEFORE THEY BREAK US

While the vast majority of our financial system works quite well, a handful of too-big-to-fail, too-big-
to-manage, and too-big-to-jail megabanks continue to pose an enormous risks: to our financial system, the economy, and American families.

As President, Governor O’Malley will work tirelessly to eliminate the unique danger posed by too-big-to-fail banks, by making the following structural reforms.

Proposal: Break Up the Biggest Banks

Separate Risky Investment Banking from Ordinary Commercial Banking

For 70 years, the 1933 Glass-Steagall Act kept the U.S. economy safe from major financial crises by requiring commercial banks to be separate from investment banks to prevent them from putting everyday Americans’ deposits at risk. If Glass-Steagall hadn’t
been repealed in 1999, the financial crisis willlikely have been far less severe.

Governor O’Malley will:

Immediately Reinstate Glass-Steagall.The Volcker Rule, sometimes referred to as “Glass-Steagall Lite,”
is excessively complex, providing too many opportunities for banks to exploit loopholes and ambiguities. O’Malley
will introduce legislation to once again separate traditional banks from riskier financial services, while updating
protections to account for new banking activities and prevent the new rules from being watered down. This
willbe one of his top priorities.

End “Too Big to Fail”

Five megabanks still control half of the financial industry’s $15 trillion in assets. The
largest banks should be subject to strict size limits to prevent this small number of too-
big-to-fail financial institutions from threatening our economy.

Governor O’Malley will:

Right-Size Big Banks Using Living Wills.Although major banks are required to produce living wills under Dodd-Frank, they have resisted compliance. The FDIC found that the banks’ plan are “not credible,” and the banks continue to drag their feet without fixing them. If banks cannot produce a living will that credibly sets
forth a detailed plan on how they would be resolved in bankruptcy without causing a crash of the financial system and without any bail outs, O’Malley will require the Fed to take remedial action to make the bank smaller and less dangerous to our families,
workers, financial system, and entire economy.

Mandate Higher Capital Requirements for Big Banks. Higher capital
requirements are a straightforward, effective, and fair way to make the financial
system significantly safer. In addition to requiring banks to fund themselves with
equity instead of risky debt, they give regulators more leeway in the event of a crisis –without posing additional burdens on smaller banks. O’Malley will strengthen capital reserve requirements for the largest banks, requiring institutions with more
than $500 billion in assets to have capital reserves of not less than 15 percent.

Proposal: Limit Risky, Speculative Trading On Wall Street

Implement a Financial Transaction Tax to Limit High-Frequency Trading

High-frequency trading creates volatility and unnecessary risk in financial markets, while serving no productive purpose in the real economy. A small tax should be applied to each sale and purchase of a financial instrument to limit this activity—one that would be
nearly imperceptible to longer-term investors, but could dramatically cut down on high-risk, speculative activity on Wall Street.

Governor O’Malley will:

Implement a financial transaction tax. The tax will be well-designed not to soak
financial traders, but to fix bad incentives for speculation that comes at the cost of
real job-creating investment.

Proposal: Put Consumer's Interests First

Require Loan Brokers to Act in Consumers’ Best Interests

The Consumer Financial Protection Bureau has made great strides in improving financial
products for consumers, but there is still far to go. A next step should be creating a
fiduciary standard for mortgage brokers and others who hold themselves out as acting in
the best interests of consumers.

Governor O’Malley will:

Create a Fiduciary Standard for Loan Brokers. O’Malley
willadopt new rules to require mortgage brokers, as well as auto loan and student loan brokers, to
put the best interests of consumers first, while providing full and fair disclosure of all
conflicts of interest. This will build from the successful efforts of states such as California and Washington.