Clinton's proposal also calls for a tax on certain forms of computerized trading that critics say create financial instability; improved transparency in markets where prices aren't publicly disclosed; and harsher penalties for banking executives whose subordinates violate the law.
Another provision would levy a tax on liability held by major banks. This fee could lessen the advantage that banks enjoy when they are seen as too big to fail. Creditors who think the government would bail out a bank in a crisis will accept discounted interest rates on money they lend to the bank, confident it will be repaid no matter what. As a complement to the fee, the proposal suggests Clinton could support rules that banks hold even more money in reserve--known as capital requirements.
In all, Clinton's plan "would make life very difficult for JPMorgan in its current form," said Dean Baker, a director of the liberal Center for Economic and Policy Research and a stalwart advocate of stricter financial regulations.
"She is clearly saying both that we have banks that are too large and pose too much danger to the economy, and that the financial sector has become too big and too complicated," Baker added. "It's really changed the debate."
As president, Clinton would need Congress's approval to implement some important provisions. Others would depend on the Federal Reserve. And in many cases, the devil will be in the details. For example, will the criteria for "too large and too risky" be generous and allow current banking behemoths to operate as they currently do? Will the big ones indeed be forced to break up? Or will there be a compromise?
Despite the Dodd-Frank financial reform that Congress passed in 2010, investors still see some banks as too big to fail.
"The expectation of government support for the largest bank-holding companies is very strong," said Simon Johnson, an economist at the Massachusetts Institute of Technology, adding that the largest banks were so complex and enigmatic, rational investors wouldn't trust them with their money if they weren't counting on help from Uncle Sam in a crisis.
"The businesses would not exist," Johnson said. "Creditors would not take on JPMorgan exposure, with this really opaque structure, unless they believed there is a substantial probability that the government is going to step in and make them whole."
If nothing else, the tone of the proposals may allay concerns among some liberals about Clinton's connections to Wall Street. Many of her advisers previously held posts in finance. Clinton, facing increasing pressure from liberal Sen. Bernie Sanders (I-Vt.) in the Democratic primary, has advanced a range of liberal positions recently, including the tough approach to Wall Street, opposition to the Asian trade pact and opposition to building the Keystone pipeline.
The aggressive proposals from the frontrunner in the Democratic primary suggest a shift in thinking about the financial industry among the party's policymakers and its rank and file, Baker said. When Clinton's husband served as president, many leading Democrats saw financial innovation as beneficial, but the securities developed on Wall Street during that period would later be blamed for the financial crisis.
"We were developing all these new financial instruments, and the view of the people in the Clinton administration was that that was fantastic," Baker said. "It's a remarkable switch."
In 2010, the Senate -- then under Democratic control -- had the opportunity to place an absolute limit on the size of banks. President Obama did not support the measure, and lawmakers voted it down by a wide margin.
Liberal activists such as Sens. Elizabeth Warren (D-Mass.) and Sanders have long sought to break up the country's largest financial institutions. Now, Clinton seems to have thrown her hat in with an emerging consensus among Democratic leaders, including Martin O'Malley, another presidential candidate and the former governor of Maryland.
"I'm seeing parts of the O'Malley framework. I'm seeing things that Bernie Sanders has been talking about for a decade. I'm seeing things that Liz Warren says every day," said Isaac Boltanksy, who is an analyst and a senior vice president at Compass Point, of the elements in Clinton's proposal. Compass Point is an investment bank.
There is some evidence that the Dodd-Frank financial reform Congress passed in 2010 has reduced the size of large firms, Boltansky said. For example, General Electric, which had made finance a central part of its company and required emergency funding during the 2008 financial crisis, sold off its consumer-finance unit over the summer.
In her proposal, Clinton pledged to veto any legislation that would undermine Dodd-Frank —- a pledge that could be difficult to keep. Confronting the possibility that the government would shut down again last year, Obama signed a bill repealing a Dodd-Frank provision on some derivatives.
Clinton stopped short of calling for the restoration of the Glass-Steagall law, which barred banks from conducting ordinary commercial banking alongside riskier investment banking until her husband repealed it. O'Malley and Sanders have called for the law to be reinstated, which would force large banks to divest.
Under Clinton's proposal, some banks might be forced to downsize all the same. Financial executives would have to prove that they are capable of managing risk at their firms. If regulators felt that a bank's activities posed a risk to the economy, they would be able to order institutions to reorganize or break apart.
Clinton would also impose a tax on liabilities at banks with at least $50 billion in assets, with high-risk, short-term liability taxed at a higher rate. The fee has some bipartisan support, as Rep. Dave Camp (R-Mich.) included it in his proposal for tax reform, but is unlikely to win the approval of a divided Congress.
The proposal also states, however, that Clinton could support requirements that banks retain more capital on their books as a buffer against crises. Those requirements would be set by the Federal Reserve, a body that the next president could influence through appointments and public statements.
"That may be the key sentence in the whole document," Johnson said. "It's absolutely something the president could sway."
Another measure to limit risk at major banks would be an amendment to a restriction known as the Volcker Rule, established as part of the Dodd-Frank law. Clinton would alter the rule to further restrict banks' ability to make risky investments with federally insured deposits.
Apart from banks, the proposal pledges Clinton's support for continuing discussions among regulators about how to limit risk at so-called "shadow banks" -- Wall Street firms that aren't technically banks and aren't subject to the same rules. The sector has expanded significantly since the passage of Dodd-Frank. Lines of business that traditional banks would have carried out previously have shifted to the shadow banking sector as finance executives have sought to escape new regulations.
And in the stock market, Clinton would impose a tax on automated, high-frequency trading by computers programmed with money-making algorithms. She also called for new rules on so-called "dark pools," stock exchanges in which prices aren't disclosed to the public.
Eric Scott Hunsader, the founder of the financial data firm Nanex and a critic of high-frequency trading, dismissed Clinton's proposals as "a ruse," saying the candidate relies on financiers for campaign donations.
The definition of "harmful high-frequency trading" in Clinton's proposal is unclear, Hunsader noted. Dark pools only account for about 10 percent of the total volume of securities traded on a daily basis, and a small fraction of what Hunsader describes as manipulation of unwitting investors.
He argues that conventional stock exchanges, such as the New York Stock Exchange, should not be granted legal immunity from lawsuits brought by frustrated investors, as they are under current law. Without that protection, Hunsader contends, the threat of litigation would prevent what, in his view, is abusive high-frequency trading.