Morning commuters walk on Wall Street in New York's financial district September 5, 2013.BRENDAN MCDERMID/Reuters
At first glance, Bernie Sanders, the self-described socialist running for president, would seem to have little in common with Neel Kashkari, a former Goldman Sachs banker and Republican who now leads a branch of the U.S. Federal Reserve.
But the two men agree on one thing: U.S. banks remain too big to fail and it's time to do something dramatic about it.
Together, the politician and the regulator have helped reignite a question still smouldering eight years after the financial crisis. Even after an overhaul of the regulatory framework aimed at preventing future meltdowns and bailouts, there is bipartisan unease that those measures haven't gone far enough.
On the campaign trail, Mr. Sanders has called for breaking up big banks. From his perch at the Fed, Mr. Kashkari has launched a process that will culminate in specific proposals to make the banking system more stable. One option on the table: Forcing banks to become smaller. The prescriptions are expected by the end of the year, just in time to greet a newly elected president and U.S. Congress.
For major banks, the renewed attention to their status as a potential threat to the financial system comes at a bad time. Last month, five large banks flunked a key test from regulators, who said the financial institutions had failed to provide credible "living wills." Such plans are a blueprint for how to avoid chaos when a major bank collapses and an important component of the postcrisis reforms.
In addition to facing regulatory pressure, banks have become a punching bag in the election campaign. Then there's the ugly business environment: In the first quarter of 2016, all major U.S. banks posted declines in profits, some of them substantial. At Goldman Sachs Group Inc., profit fell 60 per cent from the same period a year earlier.
For Mr. Kashkari, the president of the Minneapolis Federal Reserve, the stability of the financial system is a personal cause. From 2006 to 2009, he was an official in the U.S. Treasury Department, where he was intimately involved in the effort to ward off a banking collapse.
Starting with a speech in February and again in an address last month, Mr. Kashkari outlined his worries. Large banks "continue to pose a significant, ongoing risk to our economy," he said, and warned against following the "default path of incrementalism" or change by small degrees, which he said would lead to another crisis. He said he was skeptical that in a future crisis, policy makers would force bank creditors to swallow huge losses.
For Mr. Kashkari "to come out and say something is wrong with banking was kind of shocking to people," said Anat Admati, a finance professor at Stanford University who has been a vocal advocate for banking reform in recent years. Mr. Kashkari wasn't saying what some other regulators have suggested, which Dr. Admati characterized as "go back to sleep, everything is better than it was before."
The Minneapolis Fed held one symposium on the topic in April, inviting experts to an event that was livestreamed online. Among the ideas explored: Forcing banks to borrow less and rely more on shareholder equity to fund their operations, and capping the size of individual banks as a percentage of gross domestic product. Another gathering will take place later this month; one of the panelists is former Fed chairman Ben Bernanke.
Ron Feldman, a senior policy adviser at the Minneapolis Fed who works closely with Mr. Kashkari, said the current moment is ripe to consider something "really transformative" – a time beyond the instability of the crisis but before the memory of it fades. "It's too important of an issue to say we've already thought about it."
Not everyone is a fan of Mr. Kashkari's outspokenness. Larry Summers, a former Treasury secretary, said Mr. Kashkari's speech in February was "blatantly political" and criticized its "style and tone" as incompatible with the Federal Reserve.
Mr. Feldman called such critiques nonsense. "It's clearly within our realm of responsibility to be thinking about these kind of issues," he said.
For some on Wall Street, the re-emergence of the debate around the role of banks in the stability of the financial system is a screen for a long-running ideological argument.
"The basic issue is whether 'too big to fail' is really a dog whistle for 'too big,'" said Rodgin Cohen, senior chairman at Sullivan & Cromwell LLP in New York, who is considered the dean of Wall Street lawyers. "These two topics can be conflated, but they really are different."
Mr. Cohen added that today's regulatory environment remains the most tension-filled and confrontational that he has ever experienced in his long career representing large banks.
It's not clear whether the current discussion around the role of banks is simply an intellectual debate or a possible precursor to action by legislators next year, noted David Wessel, who directs a centre on fiscal and monetary policy at the Brookings Institution in Washington. If a trading scandal or bank failure occurred in the near future, Mr. Wessel said, that could serve as an impetus for change.
New regulations have rendered the financial system safer than it was on the eve of the previous crisis, Mr. Wessel added. At the same time, "it would be very hard to make the case that we've completely solved the problem."