ICYMI: Senator Warren Leads Response to Bank Collapses, Holds Regulators and Executives Accountable for Failures
After Silicon Valley Bank and Signature Bank Collapses, Senator Warren has led efforts to hold executives and regulators accountable for failures, reinstate critical regulations to protect consumers and the economy
Washington, D.C. – After the collapse of Silicon Valley Bank (SVB) and Signature Bank (Signature), United States Senator Elizabeth Warren (D-Mass.) has led congressional efforts to investigate what happened, hold bank executives and regulators accountable for their failures, and reinstate and strengthen critical banking laws and regulations to protect consumers and the economy.
Introducing Bipartisan Legislation to Establish an Independent IG at the Fed
Senators Warren and Rick Scott (R-Fla.) introduced bipartisan legislation that would require a presidentially-appointed and Senate-confirmed Inspector General to the Board of Governors of the Federal Reserve System and the Bureau of Consumer Financial Protection. The bill would bring serious changes and overdue accountability to the Federal Reserve to protect American families and workers.
- Warren said this month's banking upheavals "have underscored the urgent need for a truly independent inspector general to hold Fed officials accountable for any lapses or wrongdoing."
- The cooperation between Scott and Warren, who usually inhabit opposite poles of the political spectrum, could be the start of a new bipartisan push on banking.
- Both Republicans and Democrats have pledged tighter oversight of banking regulators following the collapses of Silicon Valley Bank and Signature Bank, which were followed by billions of dollars in losses for financial stocks.
Demanding Fed Crackdown on Large Regional Banks
Senator Warren led eleven senators in a letter to the Federal Reserve’s Vice Chair for Supervision Michael Barr, calling on him to exercise the Fed’s authority to strengthen regulation and supervision of banks with assets totaling $100 to $250 billion to prevent further bank failures.
- “The fall of both SVB and Signature, the near-crash of First Republic, and the struggles of other regional banks shed new light on the systemic important of banks with assets totaling between $100 billion and $250 billion,” the lawmakers wrote in a letter sent Wednesday to Michael Barr, the vice chair for supervision at the Fed.
- “Irresponsible and excessive risk taking by SVB and Signature executives should serve as a clear reminder that banks cannot be left to supervise themselves,” Warren and the other Senate Democrats wrote. “The Fed has a responsibility to ensure financial stability, and in order to fulfill that responsibility, it must ensure that all banks with potential systemic significance are subject to rigorous safety and soundness rules.”
Calling on Congress and Regulators to Strengthen Banking Regulations
Following the failure of Silicon Valley Bank, Senator Warren published an op-ed in the New York Times, urging Congress and federal regulators to strengthen weakened rules to avoid another crisis, intensify bank oversight, and hold bank executives accountable for any malfeasance or mismanagement that led to this failure.
In 2018, Senator Warren was outspoken about the dangers of rolling back banking regulations.
- No one should be mistaken about what unfolded over the past few days in the U.S. banking system: These recent bank failures are the direct result of leaders in Washington weakening the financial rules.
- These threats never should have been allowed to materialize. We must act to prevent them from occurring again.
- These bank failures were entirely avoidable if Congress and the Fed had done their jobs and kept strong banking regulations in place since 2018. S.V.B. and Signature are gone, and now Washington must act quickly to prevent the next crisis.
Reaction to Op-Ed
- Elizabeth Warren first came to national prominence in 2008, the last time the brew of corporate and regulatory corruption took down the financial system and crashed the economy. Today’s crisis is not as severe, but the dynamics are identical.
- The current banking mess is an echo of 2008 because it blends the speculation of reckless bankers with the corruption of legislators and regulators. In 2018, Congress joined with President Trump to weaken a core provision of the Dodd-Frank Act that Warren had worked to make as tough as possible.
- "Remember after the crash in 2008, we understood that if you don't put pretty strict regulations on these big banks, they'll go out and boost their profits by taking on a lot of risks," Warren told NPR's Leila Fadel on Tuesday's Morning Edition.
"Then in 2018, the Republicans under Donald Trump said, no, we need to loosen those regulations," Warren said. "And they got some help from the Democrats and ultimately passed a bill that rolled back that kind of protection for banks that were bigger than $50 billion but smaller than $250 billion.”
"And sure enough, we saw the consequences of that over the weekend," Warren said.
- In an op-ed in the New York Times Monday, Sen. Elizabeth Warren (D-MA), who led the charge against deregulation in 2018, wrote that SVB and the crypto-focused Signature Bank, which was also shut down by the FDIC on Sunday, couldn’t shoulder the old-fashioned bank runs that killed them precisely because there wasn’t oversight to “expose their vulnerabilities and shore up their businesses.”
Reinstating Critical Banking Regulations
Senator Warren introduced legislation that would reinstate tougher banking regulations that Republicans scrapped in 2018. The Secure Viable Banking Act, which she introduced with Representative Katie Porter (D-Calif.), would repeal Title IV of the Economic Growth, Regulatory Relief, and Consumer Protection Act and restore critical Dodd-Frank rules and for large banks. The rollback of these protections allowed banks to load up on risk to boost their profits. Senator Warren spoke on the floor of the United States Senate about the need for this legislation.
- “In 2018, I rang the alarm bell about what would happen if Congress rolled back critical Dodd-Frank protections: Banks would load up on risk to boost their profits and collapse, threatening our entire economy — and that is precisely what happened,” Warren said. “President Biden called on Congress to strengthen the rules for banks, and I’m proposing legislation to do just that by repealing the core of Trump’s bank law.”
Business Insider: Elizabeth Warren scoffs at the idea that banks like SVB can be trusted to do their own stress testing: 'I taught school for many, many years. And I did not let my students do their own testing'
- With rising interest rates being a main stressor that led to SBV's demise, the Massachusetts senator told CNBC on Tuesday that banks cannot be trusted to do their own "stress testing." These tests check whether or not banks have enough funding to absorb a loss during "stressful" conditions, according to the Federal Reserve. To pass stress testing, a bank needs to withstand such conditions while also having enough funds to lend to households and businesses and meeting obligations to creditors.
- "I'm sorry, I taught school for many, many years. And I did not let my students do their own testing. The testing that is meaningful is the test that comes from the outside. The whole point of stress testing is for someone on the outside of the bank to say, 'what could go wrong here?' and make sure the bank can withstand the problems like a sudden increase in interest rates."
Demanding Answers from Bank Executives
Senator Warren wrote letters to executives of SVB and Signature, demanding explanations from the banks about their failures for their customers and the public, and calling them out for their role in lobbying for banking regulation rollbacks that facilitated their banks’ respective collapses.
“You owe your customers and the public an explanation for the economically disastrous outcomes you created,” wrote Senator Warren. “You worked hard to weaken the rules, promised that they 'bode(d) well' for your bank – and then destroyed it with bad decision-making and excessive risk-taking.”
- Senator Elizabeth Warren has already made it abundantly clear that she blames the 2018 rollback of Wall Street regulations passed in the aftermath of the 2008 financial crisis for Silicon Valley Bank’s failure. But she is not done pursuing the issue.
- On Wednesday, the Massachusetts Democrat — who rose to national fame as an advocate for tougher rules for big banks following the 2008 crisis — sent a scathing letter to SVB’s former president and CEO, Gregory W. Becker, asking the former executive to detail his bank’s ultimately successful lobbying efforts to loosen regulations on midsize banks under the 2008 law known as Dodd-Frank.
- “These rules were designed to safeguard our banking system and economy from the negligence of bank executives like yourself — and their rollback, along with atrocious risk management policies at your bank, have been implicated as chief causes of its failure,” Warren wrote.
- In a new letter to the CEO of failed bank Signature Bank (SBNY), Sen. Elizabeth Warren (D-Mass.) is demanding answers from a bank she says engaged in "excessive risk-taking" while leaning on a "get-rich-quick narrative" during its foray into the crypto world.
- "You owe your customers and the public an explanation for the economically disastrous outcomes you created: you worked hard to weaken the rules, promised that they 'bode[d] well' for your bank — and then destroyed it with bad decision-making and excessive risk-taking," Warren writes in the letter to Signature Bank CEO Joseph DePaolo. "Congress and the public must learn the lessons from the failure of Signature Bank."
- Warren argues in her letter the bank fought to support efforts to curtail capital requirements embedded in the Dodd-Frank Wall Street Reform law and funneled thousands of dollars in campaign donations to leaders of the effort to loosen bank regulation in Congress.
Calling out the Federal Reserve’s Astonishing Failures and Demanding Fed Chair Jerome Powell Recuse Himself from Internal Investigations
Senator Warren sent a letter to Federal Reserve Chair Jerome Powell criticizing his leadership failures at the Fed that directly contributed to the sudden collapse of both Silicon Valley and Signature Banks and the significant risk to the banking system and economy that the collapses unleashed.
Following the Federal Reserve’s announcement that it will launch an internal review of its supervision and regulation of SVB after the bank’s failure, Senator Warren immediately called on Chair Powell to recuse himself from the investigation.
- “SVB and Signature accumulated risk and made dangerous decisions about how to manage that risk,” Warren said. “They did so in part because of greed and incompetence – but were allowed to do so under faulty supervision and in a weakened regulatory environment that you helped to create.” “You owe the public an explanation.”
- In her letter, Warren also said Powell supported a 2018 law that exempted mid-sized banks like SVB from the same stringent oversight requirements faced by the biggest banks, a change that she and some other progressives have said contributed to SVB’s demise. Testifying about the bill at the time, Powell said the Fed would still have the ability to regulate mid-size banks if warranted, and that gave them “the tools that we need.”
- Democratic U.S. Senator Elizabeth Warren on Tuesday called on Federal Reserve Chair Jerome Powell to recuse himself from an internal review of recent bank failures, saying his actions "directly contributed" to them.
- "Fed Chair Powell's actions directly contributed to these bank failures. For the Fed’s inquiry to have credibility, Powell must recuse himself from this internal review," she said in a Twitter post. "It’s appropriate for Vice Chair for Supervision Barr to have the independence necessary to do his job," said Warren, a Democrat, who has been a sharp critic of Powell.
- Sen. Elizabeth Warren blamed some of the recent banking crisis on Federal Reserve Chair Jerome Powell, saying he "took a flamethrower" to regulations in her most forceful criticism yet after the collapse of Silicon Valley Bank.
- Amplifying her critique on NBC’s Meet the Press on Sunday, Warren said Powell “took a flamethrower to the regulations” and that, as a consequence, “the CEOs of the banks did exactly what we expected. They loaded up on risk that boosted their short-term profits. They gave themselves huge bonuses and salaries and exploded their banks.”
- That’s tough language. But Warren, with her decades-long history of scholarship on the financial services industry and the Fed—as well as her current perch on the Senate Banking Committee—knows whereof she speaks. She’s never been a fan of Powell, who was nominated as Fed chair in 2017 by former President Donald Trump and renominated by President Joe Biden in 2021. But the senator, who once referred to Powell as “a dangerous man,” has stepped up her criticism of the chairman since the bank collapses of earlier this month, and on Sunday declared, “He has had two jobs. One is to deal with monetary policy. One is to deal with regulation. He has failed at both.”
Pushing for Independent Investigations into Banking Failures
Senator Warren sent letters to the Inspectors General of the Department of Treasury, the Federal Deposit Insurance Corporation, and the Board of Governors of the Federal Reserve, urging them to immediately open a thorough, independent investigation of the causes of the bank management and regulatory and supervisory issues that caused the bank collapses, and deliver a preliminary report to Congress within 30 days.
“It is also critical that your investigation be completely independent and free of influence from the bank executives or regulators that were responsible for action that led to these bank failures,” wrote Senator Warren. “I am particularly concerned that you avoid any interference from Fed Chair Jerome Powell, who bears direct responsibility for – and has a long record of failure involving – regulatory and supervisory matters involving these two banks.”
- “The bank’s executives, who took unnecessary risks or failed to hedge against entirely foreseeable threats, must be held accountable for these failures. But this mismanagement was allowed to occur because of a series of failures by lawmakers and regulators,” said Ms. Warren, who sits on the Senate Banking Committee.
- Ms. Warren was one the harshest critics of Wall Street during the 2008 financial crisis and the government’s response. She hasn’t softened her stance since becoming a senator in 2013. She lambasted the 2018 relaxation of regulations created by the Dodd-Frank Act and criticized Democrats who voted for it.
- “We need to go back and take that provision that we passed in 2018, and just roll it back out and say no, the Fed doesn’t get that ability to just go to sleep when they have ultimate supervisory responsibilities over these multibillion-dollar banks,” Ms. Warren said Sunday on NBC’s “Meet the Press.”
Pushing DOJ, SEC to Investigate Lawbreaking
Senator Warren, along with Senator Richard Blumenthal (D-Conn.), sent a letter to the Department of Justice and the Securities and Exchange Commission, calling on them to conduct a comprehensive investigation to determine whether senior executives and other officials involved in the bank collapses met their statutory and regulatory responsibilities or violated civil or criminal laws.
- “This was a ‘colossal failure in asset liability risk management,’” the lawmakers wrote to SEC Chairman Gary Gensler and Attorney General Merrick Garland. “However, a series of reports revealed that key SVB officials showed a pattern of risky and questionable decision making that may have contributed to the bank’s instability and collapse and the ripple effects being felt throughout the economy.”
- “One of the enduring failures in the aftermath of the 2008 financial crisis was the inability or unwillingness of DOJ and bank regulators to hold bank executives accountable for behavior that destroyed millions of lives and cost trillions of dollars of wealth,” Warren, a member of the Senate Banking Committee, and Blumenthal, who chairs the Permanent Subcommittee on Investigations for the Senate Judiciary Committee, wrote. “The nation’s bank regulators cannot make the same mistake twice.”
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