At Hearing, Warren Presses Federal Reserve Chair Powell on Vice Chair for Supervision’s Authority to Take Tough Regulatory Action
Warren: “[I]n the early 2000s, the Fed stood by and failed to use its authorities to regulate and supervise the biggest banks in this country, and the result was a financial crash that cost millions of families their jobs, millions their homes, and millions their savings. That’s why I believe that vigilant regulation is an essential part of the Fed’s job.”
Washington, D.C. — Today, during a hearing of the Senate Committee on Banking, Housing, and Urban Affairs, United States Senator Elizabeth Warren (D-Mass.) pressed Federal Reserve Chair Jerome Powell on the authority the Vice Chair for Supervision should have to strengthen regulation. During his tenure, Chair Powell has routinely taken actions to weaken financial regulations, making it critical that he allow a new Vice Chair for Supervision to have the ability to propose tough new rules on the largest banks.
In response to Senator Warren’s questions about how he would work with the Vice Chair for Supervision, Chair Powell stated that he would give the Vice Chair for Supervision a “degree of deference” on setting a regulatory and supervisory agenda. Chair Powell also said he “would not see [him]self as stopping” proposals that the Vice Chair for Supervision proposed to the entire Federal Reserve Board of Governors “since the law seems to indicate that that’s the job of the Vice Chair for Supervision.”
Senator Warren stressed that the Fed’s failure to regulate big banks in the 2000s resulted in a financial crash that cost millions of Americans their jobs, homes, and savings. She called out the Fed’s actions to weaken financial regulation and the failure to address emerging threats to the financial system —like climate change, cryptocurrency, nonbank financial institutions, collateralized loan obligations, and new coronavirus variants.
Transcript: CARES Act Oversight of Treasury and the Federal Reserve: Building a Resilient Economy
U.S. Senate Committee on Banking, Housing, and Urban Affairs
Tuesday, November 30, 2021
Senator Warren: Thank you, Mr. Chairman. So, as you know, in the early 2000s, the Fed stood by and failed to use its authorities to regulate and supervise the biggest banks in this country, and the result was a financial crash that cost millions of families their jobs, millions their homes, and millions their savings. That’s why I believe that vigilant regulation is an essential part of the Fed’s job. Chair Powell, you recently stated that it would be appropriate, quote, for a new person to come in and look at the current state of regulation and supervision, and suggest appropriate changes, end quote. Is that still your position?
Chair Jerome Powell: Yes, it is.
Senator Warren: Good. The press also reported this as your agreement to defer to the Vice Chair for Supervision, so I want to ask you a specific example of how that deference would work in practice. If you’re confirmed, and if the new Vice Chair for Supervision suggests a regulatory action that you disagree with, will you bring that matter before the full Federal Reserve Board for consideration?
Chair Powell: So, let me just say that what the law does is, the law gives the Vice Chair for Supervision the authority to set the regulatory and supervisory agenda, and I would expect to have a perfectly normal, good, constructive working relationship with a new Vice Chair for Supervision. I would not see myself as stopping those kind of proposals from reaching the Board, since the law seems to indicate that that’s the job of the Vice Chair for Supervision.
Senator Warren: Good, just trying to be clear on your understanding of it, so you would bring that before the full Board for consideration, even if you personally disagreed.
Chair Powell: You know, that would be my general tendency, yes.
Senator Warren: Okay.
Chair Powell: I mean, I can’t cover every possible conceivable situation but yes, that’s my understanding of how the -- this is the only other office that has specific legislative grant, is the Vice Chair for Supervision, and that’s what the job is.
Senator Warren: Okay, I appreciate that. So you’re saying you would do it and you would actually feel like you were legally bound to do it.
Chair Powell: I’d say that the law -- that’s how I read the law.
Senator Warren: Okay. If the Vice Chair for Supervision recommends regulatory action with which you disagree, such as undoing a rule that Vice Chair Quarles brought forth and that you voted in favor of, what does it mean to defer under such circumstances? I just want to understand your thinking here.
Chair Powell: I don’t think I used the term ‘defer’ -- you mentioned that was a press report. You know, we’re a commission structure, the person is not the Comptroller of the Currency where they’re the sole voice. Every Vice Chair for Supervision, and those who held the job before there was a formal job, they have to convince the other members of the Board. That’s how it works, and that’s how I would expect it to work going forward.
Senator Warren: And I appreciate that, but your specific language was that you would respect that authority, which is, I believe, why many, many in the press interpreted that as ‘defer,’ and that’s why I’m trying to understand what ‘respect that authority’ -- those were your words -- means.
Chair Powell: You know, I would say a couple things. First, respect the authority to bring these proposals. I also think a person who arrives, nominated by the President, confirmed by this body, with particular views, I would say that that person is entitled to a degree of deference, but I wouldn’t overstate that. The person still will have to convince the members of the Board to vote for whatever that person is proposing.
Senator Warren: Okay, and then, if I can, just one more example -- if the person in this role proposed new capital requirements to incorporate banks’ exposure to climate risks, would you vote for that?
Chair Powell: Would I vote for that -- I’d have to see what you’re really specifically talking about.
Senator Warren: Okay. Alright. Very helpful, I appreciate your answers here. You know, during the last four years, while the Fed was chipping away at regulations piece by piece, new and emerging threats to our financial system continue to grow. I just think about the list right now. Climate change -- right now climate change is on pace to depress the global economic output by as much as $23 trillion dollars annually by 2050. Crypto -- the market cap of the cryptocurrency market is now $3 trillion dollars, six times bigger than it was just a year ago, and this is explosive growth that is coupled with almost no regulation and no guardrails to protect either investors or our financial system. The crash scenario here writes itself. Non-bank financial institutions grow bigger by the day -- BlackRock alone manages nearly twice as much money as the entire economy of Japan, while the Fed refuses to work to declare them a systemically significant financial institution. Growth in collateralized loan obligations, a new COVID variant, the list goes on. This is why I believe the Fed must take a much more active role on regulation. Failure to do so puts our entire economy at risk. Thank you, Mr. Chairman.
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