Clinton proposes breaking up too-big banks, monitoring shadow-banking system

U.S. Democratic presidential hopeful Hillary Clinton on Thursday introduced a plan to curb what she called Wall Street abuses, including a "risk fee" on the largest financial institutions and breaking up banks considered "too big to fail."

Under the proposal, Clinton would charge a yearly "risk fee" on a sliding scale on the liabilities of banks with more than $50 billion in assets along with other institutions overseen by financial regulators, her campaign said.

The proposals also called for raising the fines that regulators could impose on corporations and their executives, and imposing a new tax on high-frequency trading (HFT).

"These sound like much more meaningful reforms than some of the things she has suggested earlier," said former Federal Deposit Insurance Corp Chair Sheila Bair, currently president of Washington College, in Chestertown, Maryland.

Clinton's HFT tax would target securities transactions with excessive levels of order cancellations, which her campaign said unnecessarily burdens markets and enables unfair and abusive trading strategies.

HFT firms say their trading adds needed liquidity and that such a tax would end up making the markets less efficient and more expensive for all investors. There were also concerns that the proposals could be expanded.

"We are concerned that this is an opening salvo that could eventually lead to a proposal to tax mom and pop investors," said Bill Harts, chief executive officer of HFT advocacy group Modern Markets Initiative.

Clinton would also pursue additional oversight of the "shadow-banking" sector by imposing other margin and collateral requirements on risky short-term borrowing; review recent regulatory changes to the money market fund industry for possible holes; create new reporting requirements for hedge funds and private equity firms; and strengthen the authority of the Financial Stability Oversight Council.

Unless the Democrats win a majority in the Senate and retake the House of Representatives in the 2016 elections, the chances of the proposals being enacted are low, Keefe, Bruyette & Woods said in a note to clients.

(Additional reporting by Ross Kerber, Sarah Lynch, Dan Freed, David Henry, Olivia Oran; Editing by Jeffrey Benkoe)