March 15, 2023

ICYMI: Warren Delivers Speech on Bank Failures and New Bill to Reverse Trump-era Deregulation of Banking Rules

On the fifth anniversary of the Senate passage of rules weakening the Dodd-Frank protections, Senator Warren introduced legislation to reverse the mistakes that Congress and President Trump made with these rollbacks.

Link to video (Youtube)

Washington, D.C. – U.S. Senator Elizabeth Warren (D-Mass.), a member of the Senate Banking, Housing, and Urban Affairs Committee, delivered a speech on the Senate Floor about the failures of Silicon Valley Bank and Signature Bank and her new bill introduced yesterday, the Secure Viable Banking Act, which would repeal Title IV of the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018. 

The full text of her remarks is available below.

Remarks by Senator Elizabeth Warren
March 14, 2023

Senator Elizabeth Warren: Mr. President, on Friday, we experienced the second-largest bank failure in our nation’s history. Make no mistake: this failure was the direct result of leaders in Washington weakening financial rules. 

In the aftermath of the 2008 financial crisis, Congress passed the Dodd-Frank Act to protect consumers and to ensure that big banks could never again take down the economy and destroy millions of lives. Since then, Wall Street executives – who hated the whole idea of this bill – spent millions to keep it from becoming law.  And after it passed, spent millions more to try to weaken it.  In 2018, the big banks won. With support from both parties, President Trump signed into law a bill to roll back critical parts of Dodd-Frank.

Now, I fought against these changes. On the eve of the Senate vote in 2018, I warned – from right here on the Senate floor – that “Washington is about to make it easier for the banks to run up risk, make it easier to put our constituents at risk, make it easier to put American families in danger, just so that the C.E.O.s of these banks can get a new corporate jet and add another floor to their new corporate headquarters.” I wish I had been wrong. 

But last week the FDIC was forced to rush in to take over two failing banks – Silicon Valley Bank and Signature Bank – and then take extraordinary actions to protect those banks’ customers and prevent the contagion from spreading throughout the economy. 

Both SVB and Signature Bank suffered from a toxic mix of poor risk management and weak supervision. If Congress and the Federal Reserve had not rolled back key provisions of Dodd-Frank, these banks would have been subject to stronger liquidity and capital requirements to help withstand financial shocks. 

They would have been required to conduct regular stress tests to expose their vulnerabilities and shore up their businesses. They would have had a more aggressive regulator standing at their shoulder looking more closely at every part of the banks’ business.  But because those stringent requirements were taken out of Dodd-Frank, when an old-fashioned bank run hit SVB?, the? bank couldn’t withstand the pressure.  Shortly after that, Signature Bank collapsed.  And to fight back the risk of contagion and to protect the banking system, the federal government once again was called on to take extraordinary measures—the kind of measures that Dodd-Frank was originally supposed to protect us against.

These threats never should have been allowed to materialize. Now, we must prevent them from occurring again by reversing the dangerous bank deregulation of the Trump era. 

On Monday, President Biden called on Congress and regulators to reverse the Trump-era deregulation and “strengthen the rules on banks to make it less likely that this kind of bank failure will happen again.”

The President is right. That’s why today, on the five-year anniversary of having weakened Dodd-Frank, I am introducing legislation, along with 15 of my colleagues –including the president, including my colleague from Vermont – to reverse the mistakes that Congress and President Trump made five years ago when they rolled back a portion of Dodd-Frank Act. 

This is what my legislation does. First, it repeals Section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. This will restore strong Fed oversight of some of the nation’s largest banks, which together hold trillions of dollars in assets.  Stronger oversight will help protect our economy from heightened risk. It is absolutely essential that we demand stronger – not weaker – oversight of these multi-billion dollar banks. 

Second, my bill repeals Section 402 of the 2018 law. That section slashed the capital requirements for large, systemically significant custody banks. Big banks cannot be trusted with lower capital requirements that degrade their ability to withstand financial shock. 

Finally, my bill repeals Section 403 which made it easier for giant banks – those much larger than SVB – to weaken liquidity requirements by adding municipal debt to the definition of “high quality liquid assets,” particularly because such debt is actually not very liquid at all. 

There are a lot more changes we need to make to our banking laws. There are many other provisions in the 2018 law that I oppose. But today, I remain focused on exactly the weakened rules that permitted banks like SVB and Signature to load up on risks, run up their profits, pay their executives giant bonuses, and eventually blow the banks to pieces.

I recognize legislation won’t fix everything. For five years, Jay Powell has overseen a deregulatory effort at the Federal Reserve Bank for banks like SVB. In 2021, I asked him if he could name a single – a single – regulation on banks that he thought should actually be strengthened instead of weakened, and he couldn’t. Preventing further crises will require a complete 180 degree turnaround from the Fed, starting immediately.

This bill will address the immediate issue in front of us – an explosion of risk in large financial institutions like SVB that have been inadequately supervised and regulated for the last four years. And it will show Americans across the country, in the wake of this disaster, Congress is capable of acting quickly and decisively to make sure that a serious problem doesn’t get worse—a lot worse.

The bank failures our nation experienced this weekend were entirely avoidable if Congress and the Fed had done their jobs and kept strong oversight of big banks in place. Now, we must act quickly to prevent the next crisis by repealing the dangerous Trump-era provisions that made banks weaker. 

Thank you, Mr. President.