March 07, 2018

Senator Warren Outlines How Bank Deregulation Bill Poses Risk to Economy

Video (YouTube)

Washington, DC ­- In a floor speech delivered today on the Senate floor, United States Senator Elizabeth Warren (D-Mass.) continued speaking out against the Senate's effort to roll back the rules on the biggest banks in the country.  In her remarks, Senator Warren discussed how, in addition to hurting American consumers, the legislation to deregulate these banks will increase the risk of another economic meltdown.

The speech is the second of three floor speeches that Senator Warren will deliver this week on the bank deregulation bill.

The full text of her remarks, as prepared for delivery, is available below.

Remarks by Senator Elizabeth Warren
*As prepared for delivery*
March 7, 2018

Mister President: this week, nearly ten years to the day after we first discovered that big banks had crashed our economy, Washington is about to take many of those same giant banks off the government watch list. I doubt that makes sense to any of the millions and millions of Americans who experienced first-hand the economic horrors of the financial collapse - but it makes perfect sense in Washington, where swarms of lobbyists seem to have the power to erase politicians' memories.

The Senate is debating a bill that would roll back rules designed to protect consumers and prevent another economic meltdown. Yesterday, I talked about how this bill scraps a lot of important consumer protections for American families buying homes. In addition to squeezing consumers, this bill also loosens our hold on some of the very same giant banks that wrecked our economy.

Ten years ago, a bunch of enormous banks got taxpayer bailouts while American consumers got a punch in the gut. The excuse in Washington was that these banks were so interconnected with one another and with the overall economy that the failure of one could bring the rest of the system down too.  Too bad, they said, we have to bail them out.  Individual families, however, could be crushed underfoot.  They weren't big enough to be worth saving.

Congress passed the huge bailout, but to keep this from ever happening again, Congress decided to put the small number of American banks that controlled more than $50 billion in assets - about the 40 of the largest banks in the country - on a watch list. Those banks would be under tougher federal oversight and would be subject to some stronger rules to stop them from bringing down the economy again.  A small bank in Adams, Massachusetts would be regulated one way, and a giant bank with offices around the country and around the globe would get a much closer look.  That makes sense.

If this bill passes, Washington will scrap those rules for 25 of those enormous banks.  Under this bill, a bank that controls up to a quarter of a trillion dollars in assets and has offices around the country and around the globe will follow the same rules and regulations as a tiny little bank in Adams, Massachusetts. 

That's great if you're a quarter-trillion dollar bank, but not so much for anyone else. This bill isn't about restrictions on assets measures and investments. It's not about appropriate leverage ratios and proprietary trading. It's about keeping hardworking American families from getting crushed by another financial crisis. It's about a Congress that isn't here to do the bidding of quarter-trillion dollar banks.  It's about a Congress that's supposed to be working for the American people.

Right after the financial crisis, before I ever thought about running for the Senate, Congress put me in charge of an independent panel that was supposed to police the bailout money. We held hearings around the country to talk to people who had been punched in the gut by the financial crisis.

I'll never forget one witness I met at the hearing in Las Vegas. His name was Mr. Estrada - the father of two little girls. He wore a jacket over his T-shirt and had on a red US Marine Corps baseball cap. He and his wife both worked, and they had stretched their budget to buy a home that would get their girls into a good school, which was right across the street.

When the payments on their mortgage jumped, they fell behind. He tried to negotiate with the bank, and he thought he and the bank had arranged a settlement. Then-poof!-the house was sold at auction. "So at the end," he said, the bankers "tell me that I have fourteen days to get my children out of the house."

Mr. Estrada explained what happened next: "My six-year old came home the other day with a full sheet of paper with all of her friends' names on it. And she told me that these were the people that were going to miss her because we were going to have to be moving. And I told my daughter, I says 'I don't care if I have to live in a van. You're still going to be able to go to this school.' I'm trusting in God that we're going to be able to be back into this home again."

Several times Mr. Estrada paused to try to get control of himself, and his pain and desperation seemed to push all the air out of the room.

I'm here today to ask - who in the United States Senate will fight for Mr. Estrada? Who will fight for the millions of other Americans who paid the price because big banks gambled with the economy and lost?

I'm here to fight for everyone who, in 2008, had to tell their children to pack up their toys because we have to move;

For every American who worked a lifetime, did everything right and saved for retirement, only to watch their savings go up in smoke.

For every small business owner who had to shut their doors on years of long hours, and sweat, and hope, and tell their employees not to come back the next day.

For those hardworking employees who lost their jobs.

And for all those Americans who kept fighting through the crisis, no matter how hard it was to keep pushing, and who, years after corporate profits rebounded and the banks were riding high on Wall Street again, finally got their families back on their feet.

That's who I'm fighting for. And on the other side? An army of bank lobbyists, who are fighting for some of the biggest banks in the country. 

Now, that's not what they'll tell you. They'll say this isn't about big banks at all. No, the lobbyists swear up and down that they're fighting for small banks - banks that aren't risky and didn't cause the financial crisis. And they'll make up all sorts of false claims about how banks are struggling under the new rules - never mind that banks of all sizes are making literally record profits. 

Give me a break. This bill is about goosing the bottom line and executive bonuses at the banks that make up the top one half of one percent of banks in this country by size.  The very tippy-top. Your local community bank doesn't have a quarter of a trillion dollars in assets. Your local community banks doesn't own the naming rights to a stadium or a ballpark.  This bill is designed to help a handful of giant banks that together control more money than the nominal GDP of more than 100 independent nations on Planet Earth. These are not "small banks" - and the idea that these wealthy and powerful banks need Congress to step in and protect them from having to follow some common-sense rules would be down right laughable if it weren't so dangerous. 

How big and important are these banks are to the financial system? Just look at what happened in 2008.  During the financial crisis, some of the very same big banks that are deregulated by this bill sucked down nearly $50 billion in taxpayer bailout money.  That's taxpayer money - money that could have gone to building roads and bridges, or schools, or medical research - but that went instead to propping up these big, failing banks instead.

And now the Senate wants to turn them loose once again.

It's not just the bailouts.  Banks with less than a quarter-trillion dollars in assets helped cause the financial crisis in the first place.  Remember Countrywide? In its 2006 annual report, right in the heart of the housing boom, Countrywide reported that it had $199 billion in assets, putting it right smack in the middle of the pack of banks that this bill would take off the watch list.

Countrywide made billions of dollars by scamming consumers. At its peak, it was the biggest mortgage lender in the country.  It was also a subprime loan specialist, an expert on trapping people in tricky loans they didn't understand and couldn't afford. Countrywide was obsessed with making as many loans as possible and squeezing out the competition. They gobbled up fees and down payments, then sold those risky loans before they blew up.  And Wall Street gobbled up those loans and packaged them and sold them on down the line just as quickly as Countrywide could make them.

How could this happen?  One reason is that the Feds had been really easy on Countrywide. In fact, Countrywide picked its own regulator - the Office of Thrift Supervision, which cuddled up so close to the banks it was supposed to be policing that, after the financial crisis, Congress actually abolished that regulator.

Eventually, Bank of America bought the bank at a bargain price, and its owners lost money on the deal. Poor Bank of America. Of course, that was nothing - nothing - compared to what people with retirement accounts lost when their investments tanked.  It was certainly nothing like what Mr. Estrada and his little girls suffered because banks like Countrywide pushed off mortgages with hidden fees or exploding payments on their little family.

Countrywide's scam mortgages were one of the main causes of the financial crisis. And if Countrywide were still around today, this bill would make it easier for them to escape government scrutiny. That's just plain reckless.

We know banks of this size can help bring down the financial system.  We know banks of this size demand billions of taxpayer bailouts when things go wrong.  That should be the end of the conversation. But if it isn't, consider this - the banks that are being deregulated under this bill have done nothing - nothing - to earn our trust and deference since the financial crisis.  Instead, they've continued breaking the law left and right. 

Take SunTrust. SunTrust has $208 Billion in assets. They would be cut loose by this bill. In 2014, SunTrust agreed to pay $320 million to settle claims that it misused bailout money that was supposed to help distressed homeowners. The law enforcement agency that led the investigation said that the bank literally took homeowners' applications to modify their mortgages and tossed them in a room and ignored them.  There were so many applications that the floor in that room buckled under the weight of documents. Think about that:  They got almost $5 billion in taxpayer bailout money, promised to help homeowners, and then just tossed application forms onto a pile that was so big it made the floor buckle.  And now, this Congress is offering to help loosen oversight on this bank.

Or how about Santander Bank? Santander has $132 Billion in assets. They could be cut loose by this bill. Less than a year ago, Santander was nabbed by the Attorneys General of Massachusetts and Delaware for funding auto loans it knew its customers couldn't repay using paperwork they knew was doctored. Pretty brazen fraud.  Now this Congress is offering to help loosen oversight on Santander as well.

Then there are the financial institutions that have been caught discriminating against their customers.

Ally Financial has $164 Billion in assets. They would be cut loose by this bill. In 2013, Ally Financial paid $98 million to settle charges that it discriminated against minority borrowers in providing auto loans. The scam was pretty straightforward:  charge African Americans and Latinos more than white people.  The scale was huge - 235,000 non-white borrowers paid on average $200-$300 more than white borrowers with similar credit profiles.  Now this Congress is offering to help loosen oversight on this bank as well

Then there are the banks that cheated investors.

Barclays US has $175 Billion in assets. They could be cut loose by this bill. In 2015, Barclays was among the handful of banks that were charged record fines by the Federal Reserve for manipulating foreign exchange markets. Barclays traders colluded with traders from other banks to share intel and push the markets in certain directions.  Now this Congress is offering to help loosen oversight on Barclay's.

Last year, the Fed caught BNP Paribas ("PAHREEBUH") USA in the same game. BNP Paribas has $146 Billion in assets. They could be cut loose by this bill.  Now this Congress is offering to help loosen oversight on BNP.

And finally, there are banks that got caught busting sanctions.

The Bank of Tokyo Mitsubishi has $155 Billion in assets. They could be cut loose by this bill. In 2013, the Bank of Tokyo Mitsubishi settled with the New York Department of Financial Services for $250 million over charges that it cleared tens of thousands of transactions. DFS estimated that the bank wired more than $100 billion to countries that were under U.S. sanctions, including Iran, Sudan and Burma. The bank specifically tried to evade sanctions by telling employees to leave destination information out of the wire instructions of money going to those countries.  Now this Congress is offering to help loosen oversight on Bank of Tokyo Mitsubishi.

And let's pause on this one.  Washington thinks this bank needs less oversight. A year after it got caught funneling money to dangerous regimes and then trying to cheat rather than fixing the problem, a state banking regulator actually put an independent monitor inside the bank to keep an eye on them.  Now, Republicans and Democrats have decided that this is a bank that we can trust.

This is nuts. These are banks that taxpayers bailed out ten years ago. They cheat consumers, cheat communities, cheat markets, and endanger our national security-and still Republicans and Democrats and joining together to loosen oversight.

So what's this all about? You won't hear this coming from the supporters of this bill, but it's the truth - it's about letting these banks snap up smaller banks, consolidate the banking industry, goose banking profits, and expand executive bonuses.

It's sure as heck not about increasing lending.  These banks are sitting on mountains of cash that they could lend at any time. Just look at their profits.  BB&T made more than $2.25 billion. SunTrust and pocketed a cool $2.3 billion. M&T clocked in at $1.3 billion. I could go on and on.

In fact, instead of lending more money, these banks have been plowing their massive earnings into stock buybacks.  Just last month, M&T Bank announced it was spending an additional $745 million to repurchase stock. A few weeks later, Fifth Third authorized buying back $3 billion in stock.  Every single one of those dollars could have been put to new small business loans or home mortgages.  Instead, they went to goosing the banks' stock price and putting bigger bonuses in executives' pockets.  Does anyone really think that if the banks have even more money to burn they will completely change course and pour that money into lending? To ask is to answer.

And, these banks aren't exactly acting like they're starving for cash when they set their executives' paychecks. In 2016, the head of Regions made more than $14 million all in. The CEO of Huntington? Almost $9 million, not including almost another quarter of a million dollars that the company spent to cover the CEO's personal use of its jet.   The CEO of Keycorp made $7.1 million. The CEO of CIT Group made the same, up from $3.2 million the previous year.

That's not all. The good times are rolling at these banks. Zions Bank held a swanky party to kick off the Sundance Film Festival this year with a cute little hot chocolate bar. American Express just opened a shiny new regional headquarters building, which cost $200 million. 

If this law passes, and if these bankers, sitting around a shiny new table in their gorgeous new headquarters decide to gamble a little bit more, just like they did in the lead up to the financial crisis, regulators might not even know. If lying back in the plush seats of their corporate jets, they cook up some kind of risky, complicated investment that nobody understands until it goes bad, regulators probably won't catch it in time. And if their bets fail, these more dangerous banks are more likely to crumble, and more like to bring the rest of us with them.

This is madness. It's greed run wild. These rules have kept us safe for almost a decade-even as these same banks have chomped at every regulation and tried to evade every rule. Now, 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 the CEOs of these banks can get a new corporate jet and add another floor to their new corporate headquarters.

Despite everything they've already done to cheat their customers and endanger the financial system, those big banks will always have their advocates in Washington.  But what about Mr. Estrada, and the millions of working Americans like him who want Washington to think about them for a change? Mr. Estrada can't afford to hire a lobbyist and he can't cut a thousand dollar campaign check and he can't host a fundraiser at a DC steakhouse.  And the result, it seems, is that every Republican in this chamber - and far too many Democrats - will lie down with the banks and ignore Mr. Estrada and his two little girls.

We should be working for people like Mr. Estrada, not for the big banks.  Mr. Estrada has earned it - these banks haven't.