March 07, 2024

At Hearing, Warren Presses Powell on Basel III Capital Rule, Urges Him to Stand by Previous Commitments to Strengthen Regulations for Nation’s Biggest Banks

“When the heat was on last year, you talked a lot about getting tougher on the banks. But now the giant banks are unhappy about that, and you've gone weak-kneed on this.”

“The American people need a leader at the Fed who has the courage to stand up to these banks and protect our financial system.”

Video of Exchange (YouTube)

Washington, D.C. — Today, at a hearing of the Committee on Banking, Housing, and Urban Affairs, U.S. Senator Elizabeth Warren (D-Mass.) called out Chair of the Federal Reserve Jerome Powell for backpedaling on his commitment to strengthen capital rules for big banks in the wake of the First Republic, Silicon Valley, (SVB) and Signature Bank collapses of last year — the second, third, and fourth largest in American history. 

At the hearing, Senator Warren called attention to Chair Powell’s previous commitments in 2023 to learn from SVB’s collapse and support Vice Chair for Supervision Michael Barr’s recommendations, including strengthening rules for big banks to create a more resilient financial system, and asked him if he continued to stand by this pledge. Chair Powell confirmed he did, in response. 

But after intense lobbying efforts and advertising campaigns by big banks, public reporting indicates Chair Powell is pushing to weaken the rule. Senator Warren pressed Chair Powell to commit to passing the strongest possible capital rule this year, to which the Chair said he would consider making “material and broad changes” to the rule before finalizing it, with an option to re-propose it — a statement in direct opposition to his previous commitments. 

Transcript: The Semiannual Monetary Policy Report to Congress
U.S. Senate Committee on Banking, Housing and Urban Affairs
Thursday, March 7, 2024 

Senator Warren: Thank you, Mr. Chairman. 

So, it's been a year since we had the second, third and fourth largest bank failures in American history. Greedy bank executives were part of the problem. And the Fed, as the chief regulator of the biggest banks, was part of the problem. 

Under your leadership and direction, the Fed steadily weakened rules for the biggest billionaire banks — exactly the banks that failed last March. In other words, Chair Powell, you failed to do your job to keep these big banks in line. 

Now, when these banks blew up, you went into spin mode promising that the Fed would do better. After years of hemming and hawing, you finally agreed to put in place Basel III rules that would strengthen capital standards for the biggest banks. And I mean, the biggest banks. That means the Fed’s proposed rule would apply to only 37 of the nation's 4,500 banks, only the banks that have $100 billion or more in capital. 

Now, Chair Powell, when you testified before this committee last June, I asked you about taking responsibility for bank failures. And you said, quote, “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,” end quote. And as part of learning those lessons, you also said, quote, “that you agree with and support” end quote, Vice Chair for Supervision Barr’s recommendations for strengthening the Fed’s rules and supervisory practices for the big banks, and that you’re, quote, “confident they will lead to a stronger and more resilient banking system,”end quote. 

So, I just want to be clear. You haven't backed down from any of your comments from a year ago, have you Chair Powell? “Right lessons” and, “don't let this happen again,” supporting Vice Chair Barr’s recommendations, which includes stronger capital standards. 

Chair Powell: No. 

Senator Warren: You still stand by all that? 

Chair Powell: Yes. 

Senator Warren: Good. Good. I'm glad to hear that. 

Now, I understand that those 37 big banks don't like higher capital rules because they are like insurance. You know, they would make the bank safer, but they cost a little money and would nip into the bank's profits. 

So, these 37 banks are swinging their very considerable weight around to try to weaken the capital rules. They've spent tens-of-millions of dollars running ads during Sunday night football, and millions more for an army of lobbyists to try to twist arms here in Congress. Impressive spending, but who exactly are they trying to impress?A man on the inside? 

You know, despite all you said last year when the banks failed about supporting Vice Chair Barr’s recommendations to strengthen rules for big banks, public reporting now says that you are driving efforts inside the Fed to weaken the capital rule. You even told the House Financial Services Committee representatives yesterday that you think it's quote, “very plausible,” close quote, that you withdraw the rule. As one analyst put it, quote, “I don't think they will pass a final rule without Powell’s support,” suggesting that the rules will have to be weakened, quote, “to appease Powell.” 

So, Chair Powell, I'm having trouble reconciling the statements you made last year, which you say you hold on to, statements you made when the headlines were all about three giant bank failures. And now your reported efforts to quietly weaken the rules that would strengthen capital standards for giant banks and prevent more bank failures. 

So, let me just give you a chance to clarify the record here. Are you committed to finalizing the strongest version of the Basel III capital rules this year?

Chair Barr: Let me first say that we have taken and are taking many more steps to deal with the problems that reveal themselves with Silicon Valley Bank, and that's around supervision and strong liquidity—

Senator Warren: I appreciate that. But I'm just asking about the Basel III rules, the ones that you have been required for years now to put in place and have dragged your feet on. 

Chair Powell: The Basel III rules are not directly related, they’re not the thing that is directly related to Silicon Valley Bank. As you point out, they're a longer run thing and I would just say that we put them out for comment, we got the comments, anybody's free to go read the comments. 

My view is that it will be appropriate to make material and broad changes to that before we finalize it. And in terms of, I didn't say—

Senator Warren: “Material and broad changes” to strengthen the rules? 

Chair Powell: Material and broad changes. You know, we're talking about what that'll mean, in the end. 

I did not say that we would withdraw the rule. I said, you know, there's a concept of re-proposal and I said we hadn't made a decision on that, but that if that turns out to be appropriate, in the view of the Board of Governors, then that's something we would look

Senator Warren: So, everything you said a year ago about supporting the vice chair, who is responsible for writing these rules—

Chair Powell: You and I had a long colloquy—

Senator Warren: Yes, we did. 

Chair Powell: If you read it again, it's on your website—

Senator Warren: And I have. 

Chair Powell: You will see that I'm doing exactly what I said I would do in that colloquy.

Senator Warren: No, you said you would support Vice Chair Barr to get us strong rules. 

Chair Powell: No. 

Senator Warren: And now he is putting out rules—

Chair Powell: That was about Silicon Valley Bank—

Senator Warren: And you’re talking about re-proposing.  

Chair Powell: The Vice Chair for Supervision has every right to bring proposals to the Board, that has happened. But as I made clear in our colloquy, you're not the Comptroller of the Currency. This is, when I do monetary policy, I have one vote. There are eleven other voters. And that's the way it works. It's not different for the Vice Chair of Supervision.

Senator Warren: You are the leader of the Fed, and when the heat was on last year you talked a lot about getting tougher on the banks. But now the giant banks are unhappy about that, and you've gone weak- kneed on this. 

The American people need a leader at the Fed who has the courage to stand up to these banks and protect our financial system. 

Thank you, Mr. Chairman.