June 22, 2023

At Hearing, Fed Chair Powell Fails to Assume Responsibility for Deregulatory Push Preceding Bank Collapses

Warren to Powell: “The decisions that you made, the votes that you took, and the things that you said helped cause this mess.”

Video of Exchange (YouTube)

Washington, D.C. – At a hearing of the Senate Banking, Housing, and Urban Affairs Committee (BHUA), United States Senator Elizabeth Warren (D-Mass.) blasted Federal Reserve (Fed) Chair Jerome Powell on his aggressive push for deregulatory policies and the resulting banking crisis following the second, third, and fourth largest bank failures in U.S. history. During their exchange, Chair Powell failed to assume personal responsibility when questioned about his role in weakening bank regulation and supervision at the Fed.

Transcript: The Semiannual Monetary Policy Report to Congress
U.S. Senate Committee on Banking, Housing, and Urban Affairs
June 22, 2022

Senator Elizabeth Warren: Thank you, Mr. Chairman.

In 2010, Congress passed Dodd-Frank to make banking regulations tougher and avoid future bank collapses. Soon after that, bank CEOs started lobbying for weaker rules.

Now, Chair Powell, you also lobbied for weaker rules. When President Trump first nominated you as Fed Chair in 2017, you testified – actually in this very room I think – that you intended to “consider appropriate ways to ease regulatory burdens” for the banks. And when I asked you if there were any rules—any rules at all—that you thought ought to be made stronger, do you remember what you said?

Jerome Powell, Chair, Board of Governors of the Federal Reserve System: I think I pointed to the Net Stable Funding Ratio.

Senator Warren: No, actually. That’s not what you said. You said, “Honestly, Senator, I think they’re tough enough.” You couldn’t point to anything you thought should be tougher. In 2018 –

Chair Powell: In the event we strengthened the Net Stable Funding Ratio –

Senator Warren: Well, in 2018, you supported Congress’ weakening of those rules. You led the Fed in hacking away at one rule after another. According to the Fed’s own analysis of the Silicon Valley Bank failure, you weakened the rules in multiple ways: you reduced capital requirements, you weakened liquidity risk management, you skipped out on using enhanced stress testing for banks with tens of billions of dollars in assets and more.  

The result was the second, third, and fourth largest bank failures in U.S. history, which together required $23 billion in bailout money. In fact, you now hold the record: in a single year, the FDIC has been forced to rescue more giant failed banks on your watch than any Fed Chair in American history.

Chair Powell, do you agree with Vice-Chair Barr’s conclusion that the Fed bears a big share of the responsibility for the failure of SVB?

Chair Powell: I certainly think that our supervision has been shown to have been lax in not being assertive enough. I think that the supervisors saw the right issues, but weren't forceful enough in hindsight. And I think that’s certainly a fair conclusion.

Senator Warren: Okay, so those regulations were weakened and those supervisors were clearly asleep at the switch for more than five years under your watch.  

I’ll just say it again. This is exactly why I opposed your nomination in 2017. The decisions that you made, the votes that you took, and the things that you said helped cause this mess. When you were up for reappointment in 2021, I opposed your confirmation because I believed that your continued leadership would be dangerous to our financial system. And the Fed’s own report confirms that. 

Yesterday, Chair Powell, this Committee voted on a bill to help hold CEOs accountable when their actions blow up banks. At the Fed, you are the one who lobbied, who drafted, and who voted for weaker rules and you were ultimately responsible for the team of Fed supervisors who fell down on the job.  Do you take responsibility for your role in these bank failures? 

Chair Powell: So I think we learned some lessons from the bank failures. And the main responsibility I take is to learn the right lessons from this and to undertake to address them so we don't have a situation like this where we had unexpectedly a large bank fail and spread contagion into the banking system. That’s not supposed to happen and we need to take appropriate steps to make sure it doesn't happen again. 

Senator Warren: So, I just want to make sure I understand what you mean when you say you take responsibility. Do you personally take responsibility for your actions that led to the failures of these banks?

Chair Powell: Yeah, I think the question of what happened – supervision was at fault, both at the Board and at the Reserve, and –

Senator Warren: And are you ultimately responsible for those supervisors? Are you in charge here?

Chair Powell: Actually, no. Under the law, the Vice Chair for Supervision has sole authority –

Senator Warren: Okay, so you take no responsibility on that?

Chair Powell: I didn’t say that.

Senator Warren: Well, that’s what I’m trying to ask.

Chair Powell: That’s not what I said.

Senator Warren: I’m trying to understand what you take responsibility for.

Chair Powell: I take responsibility for addressing the situation appropriately –

Senator Warren: That’s talking about going forward.

Chair Powell: That’s my focus – going forward.

Senator Warren: Yeah, well, that kind of sounds like not taking responsibility for what you’ve done in the past. You know, a month ago, we had the CEOs of the banks that exploded in here.  Each of them had scooped up huge bonuses, and each of them said they planned to keep every penny of that money.  And now we have the Chair of the Federal Reserve who led the charge to weaken bank regulations, who oversaw the bank supervisors who failed miserably to hold these banks in line, and again, the accountability is zero.  

Our banking system is broken. $23 billion dollars in bailout money and there’s no accountability for those at the top, and once again the people who didn’t cause the mess are forced to clean it up.  

We need significant changes here.

Mr. Chairman, I yield.