September 14, 2023

ICYMI: Warren Calls for Stronger Bank Guardrails on Lehman Collapse Anniversary

Warren: “As we reflect on the 15 years since the crash, we’ve got a lot to be proud of. We’ve pushed for tougher rules, and empowered regulators to enforce them. ”

Washington, D.C. — U.S. Senator Elizabeth Warren (D-Mass.) delivered the opening remarks at the 15th Anniversary Lehman Collapse Conference, hosted by Better Markets, where she called for updated bank merger review guidelines to safeguard the economy from too-big-to-fail banks, and tougher regulatory scrutiny on banks with assets between $100B and $250B, among other provisions. 

The full text of her remarks is available below.

Opening Remarks, 15th Anniversary Lehman Collapse Conference
September 12, 2023 

Thank you, Dennis, for that thoughtful introduction. I’m grateful for your leadership. And I’m grateful to be here with you all as we reflect on the 15 years we’ve spent building a fairer, safer, more resilient financial system than the one that crashed in 2008.

Every year since the crash has brought countless battles to create an economy that works for American families, not Wall Street bankers. Better Markets has been on the front lines of each of those battles. You’ve gone up against the biggest lobbyist in Washington to help fulfill the promise of Dodd-Frank. You supported the creation of the CFPB in the aftermath of the financial crisis, and now you’re out front amplifying the Bureau’s important work as it faces baseless legal attacks. Thanks to your efforts, we’ve got stronger rules across the financial system, and more cops on the beat to enforce those rules. 

But, as with most fights for economic justice, this one isn’t over.

This year, we experienced the second, third, and fourth largest bank failures in U.S. history. After the 2008 crisis, Congress passed tough laws designed to rein in big banks. But the executives at Silicon Valley Bank, Signature, First Republic and other multi-billion dollar banks fought back, and in 2018, they got Congress to give in and weaken the rules. Some of us have a short memory here in Congress. 

The so-called Economic Growth, Regulatory Relief and Consumer Protection Act, or S. 2155, was a hand out to bank executives from the start. And the result was exactly what we predicted—the bank executives loaded up on risks, jacked up short-term profits, and paid themselves huge bonuses. When their banks collapsed, those same execs walked away with millions and millions of dollars.

But Congress isn't the only party responsible for this year’s crisis. 2155 provided the regulators discretion to apply enhanced standards to banks at the $100B mark. But, thanks again to bank industry lobbying, regulators refused to acknowledge the risks posed by banks of this size, and allowed institutions that had been keeping themselves small to fly under the radar, growing rapidly and recklessly. In less than 5 years, SVB grew from less than $60 billion to $200 billion, loading up on risk without constraint and without scrutiny. 

Months after SVB’s failure, the Fed released a report acknowledging that the deregulation that came with the 2018 bill helped pave the way for SVB’s failure. But we didn’t need a report to tell us that this would be the result of deregulation – we said so 5 years ago. That’s why the week after SVB collapsed, I introduced a bill to undo S 2155 with my colleague and friend Katie Porter. 

But importantly, regulators still have the ability to apply stronger standards without new legislation. Better Markets has been leading the call on this since the start, urging regulators to apply tougher standards to banks above $100 billion, recognizing that these banks pose risks, too. And thanks to your leadership, regulators are finally moving in the right direction.

In a broken system like the one we’ve got, we know who gets ahead, no matter who they’ve harmed—Wall Street executives. That was true in 2008 and it’s true today. 

That’s why, in the wake of the SVB failure, I teamed up with Democrats and Republicans to introduce the Failed Bank Executives Clawback Act, to ensure regulators have the tools they need to claw back giant bonuses from the executives who blew up their banks. The momentum we created paved the way for the Senate Banking Committee to advance an executive accountability bill – I expect the full Senate to do the same in the coming months. 

Preventing big bank CEOs from raking in huge bonuses for loading up on risks and destroying their companies is just plain old common sense. But there’s more we can and must do to protect our communities from the reckless greed of big bank executives.

Just a few weeks ago I chaired a subcommittee hearing in the Senate Banking Committee to sound the alarm on the serious problem of bank consolidation. Everyone listening to this knows megabanks are dangerous. That’s why we have the phrase “too-big-to-fail.” But these banks didn’t spring up out of the ground as trillion dollar entities. The current mess is the result of decades of mergers and acquisitions. Get ready for some numbers. In the 90s, there were 18,000 banks in the U.S., but today there are fewer than 5,000. In the 90s, the 20 largest banks had 15 percent of all bank assets. Today, they have more than two thirds. 

Beyond the numbers, this consolidation has had real consequences for real people. When banks get bigger, local branches close. When local branches close, families and small businesses have a harder time opening accounts and taking out loans. And that’s when predatory lenders and check-cashers swoop in to take advantage of people in a tough spot.

That’s the bad news. The good news is that we can fix this. We have a system in place for bank regulators to block mergers that would be bad for the economy. We just have to remind regulators of their responsibilities – and hold their feet to the fire when they ignore them.

Despite all that we’ve learned since 2008, and despite President Biden ordering regulators to update merger guidelines, Acting Comptroller Hsu and Treasury Secretary Yellen have still signaled openness to more mergers. I know you all at Better Markets have good ideas about how to fix the merger review process, and I’m counting on you to keep pushing regulators to do the right thing.

As we reflect on the 15 years since the crash, we’ve got a lot to be proud of. We’ve pushed for tougher rules, and empowered regulators to enforce them. But we’ve also got a lot of work ahead of us. Regulators are poised to finalize strong rules for big banks that are a decade in the making. We’ve got to push them over the finish line – and make sure they don’t create more Too-Big-to-Fail banks in the process. And in the meantime, Congress must pass the RECOUP Act to make sure that executives are held accountable when they blow up their banks.

This is one of the most important fights of our lifetimes, and I’m glad to be in it with you, Better Markets. Thank you!