March 12, 2018

Warren Delivers Fourth Speech in Series Against Senate Bank Deregulation Bill

Video (YouTube)

Washington, DC - United States Senator Elizabeth Warren (D-Mass) today continued speaking out against the Senate's effort to roll back rules on the biggest banks in the country. Senator Warren spoke about how the new amendment claiming to address the problems in the legislation still preserves big bank giveaways, undermines civil rights laws, and weakens consumer protections.

Remarks by Senator Elizabeth Warren
*As prepared for delivery*
March 12, 2018

Ten years ago today, at breakfast tables around the country, Americans read a shocking headline: "Fed Assumes the Role of Lender of Last Resort." The biggest investment banks on Wall Street were getting their first taxpayer bailout.  But some banks were so addicted to poisonous scam mortgages that even that bailout wasn't enough. Within a week, Bear Stearns, an 85-year-old fixture of Walls Street, would fall - and the financial crisis would begin.

Within a year, American workers' retirement accounts had lost $2.7 trillion, almost a third of their value. No one bailed them out.

Within two years, 8.8 million Americans had l­­ost their jobs. No one bailed them out.

Within three years, more than four million homes had been lost to foreclosures. Millions more were in danger. No one bailed those homeowners out.

And now, to mark the tenth anniversary of that devastating crisis, the Senate is on the verge of rolling back the rules on the big banks again.

Last week, I talked about how this bill guts important consumer protections; how it weakens oversight of banks with up to a quarter trillion dollars in assets; and how it could set the stage for another financial crisis, just like past bipartisan bills to roll back financial rules.

But the bill will also roll back the rules on the very biggest banks in the country.  The true Wall Street banks: JP Morgan Chase, Citigroup, and the rest. Banks that taxpayers spent $180 billion bailing out in 2008. 

No matter what supporters of this bill say, there are three glaring parts of this bill that - without question - help these very biggest Wall Street banks.

First, it opens the door to easing up on big bank stress tests. Right now, about 40 of the biggest banks go through stress tests ever year, simulating a financial crisis and making sure they can survive. This bill says that 25 of them can skip the hard tests from now on, and the remaining 15 or so don't necessarily have to do those stress tests every year anymore.  For the banks still doing stress tests, they can be done "periodically." Who decides what "periodically" means? The former investment bankers Donald Trump has nominated to lead the Fed and head up the Fed's supervisory work.  Feel safe?

Second, the bill gives the biggest banks a new legal tool to fight for weaker rules.  Right now, the law says that the Fed "may" tailor capital and other rules for the biggest banks. This bill says the Fed "shall" tailor these rules for the banks with more than $250 billion assets - the biggest banks in the country. That one word may not seem like much, but it means everything to the high-priced lawyers that represent these banks.

Here's what Jeffrey Gordon, a Professor at Columbia Law School, had to say about that change:

This apparently minor change is likely to produce significant degradation of financial stability especially over the long run. The change would expose the Fed to litigation challenges to its enhanced standards, in particular whether they are adequately tailored.

The statute thus empowers the largest firms which pose the biggest risks to bargain with the Fed for laxer standards with the threat of a well-resourced litigation challenge in the background. Over time this bargaining for laxity will produce a race-to-the-bottom dynamic that will dramatically increase the chance of another financial crisis.

If you think a one-word change from "may" to "shall" won't change much, consider this:  Opponents have been pointing out this problem loudly and publicly, but the bills' sponsors won't change it. Why?  Because the giant banks want the change.

The third bank giveaway in the bill undercuts capital requirements for the biggest banks. The best way to stop another taxpayer bailout of big banks is to make sure they have enough capital on hand to withstand a crisis. That's why Congress and regulators established tougher capital requirements for the big banks after the financial crisis. This bill reverses direction, opening the door to big banks like JP Morgan and Citigroup facing much lower requirements than they currently do.

In fact, the independent Congressional Budget Office says there's a fifty percent chance that JPMorgan and Citigroup can take advantage of a provision in the bill to reduce their capital requirements.  The Wall Street Journal editorial board - no fan of tough regulation - wrote that the change proposed in the banking bill is dangerous and, quote, "will make the financial system more vulnerable in a panic." The Bloomberg editorial board says the bill, quote, "chip(s) away at the bedrock of financial resilience - the equity capital that allows banks to absorb losses and keep on lending in bad times." And the consequences could be huge: According to the FDIC, this provision could lower capital requirements for JP Morgan by $21.4 billion and for Citigroup by $8.6 billion.

Now at the end of last week, the supporters of the bill introduced a new amendment that they claimed would address the problems in the bill. But that amendment did nothing to address these three glaring big bank giveaways: the stress test provision is unchanged; the litigation provision in unchanged; and the capital provision is unchanged. Victories for the big banks have all been preserved-100%.

But it's not just the big bank giveaways that remain unaddressed in this new amendment. Over the last week, we've heard a lot of criticisms of this bill from experts, and civil rights groups, and consumer advocates, and former regulators, and, most importantly, our constituents back home-and they don't like it. This banking bill undermines civil rights laws; it weakens consumer protections on mortgages and mobile home purchases; it rolls backs rules on 25 of the 40 biggest banks in the country; and it does almost nothing to protect consumers. 

Let me be completely clear: the new amendment does not address a single one of these legitimate criticisms. It's a bunch of fig leaves designed to let supporters of the bill pretend they addressed those criticisms without actually addressing them. And in some cases, it actually makes things worse.

Let's start with the fake fixes.

First, mortgage discrimination.  Discrimination is real. Some banks charge African Americans more for loans than they charge whites with similar credit.  Some deny loans to Latinos or single women. And how do we know that? Because banks have to disclose information about the loans they provide under something called the Home Mortgage Disclosure Act, or HMDA.

Using HMDA data, a new report shows that in 61 different cities around the country, minority borrowers were more likely to be denied a mortgage than white borrowers with the same income. But this bill now exempts 85% of banks from reporting HMDA data, making it much harder to uncover and stamp out discrimination.

Senator Cortez Masto had a great idea for fixing this - take the HMDA change out of this bill. Leave HMDA alone. And, if the authors of this bill wanted to really fix this problem, they would support her amendment and insist that without that amendment, they would withdraw their support for the bill.

But now the bill supporters have a fig leaf. They say that of the 85% of banks that no longer have to report, if one of them flunks two consecutive examinations under the Community Reinvestment Act, they will have to start reporting discrimination data. And if that looks like a tiny fig leaf, consider this: banks get tested at most every three years, which means it would take six years of discrimination to flunk twice. This fig leaf is so small that it's basically invisible.

Now for some of the so-called consumer protection fig leaves. The problems are real-it's just the solutions that are fake.

For example, there's a provision to deal with private student loans from banks. It says that if a student loan borrower dies, then the bank can't go after the cosigner of the loan for the full balance. That sounds good, until you read the fine print. Spouses don't count, so banks will still be free to hound widows and widowers for the balances of their deceased spouses. And, the loan isn't actually forgiven. This means that the bank can still go after dead borrowers' estates for the loan-maybe take his half of the house or whatever is in the checking account. That's a nightmare for a grieving family-and perfectly ok under the fig leaf amendment.

And in some places, it isn't even fig leaves to pretend to address problems with the bills - it's just new provisions to create new problems. 

Like a new section that blows a big hole in regulators' ability to require banks to hold capital for commercial real estate. Does anyone remember that risky commercial real estate investments were a factor in Bear Stearns' failure 10 years ago this week? Does anyone remember that six months later, commercial real estate losses would help blow up Lehman Brothers? I guess not-at least not here in Congress-because ten years later, Congress wanted to let banks take one more commercial real estate fix with less oversight.

Banks of all sizes are making record profits. Only in Washington would people think it's time to scrap the protections that have kept us safe for a decade - all so these same banks can make even more money.  It's the same mindset that set the stage for the savings and loan crisis in the late 1980s and the financial crisis of 2008.

America's working families will pay the price if we make the same mistakes again.  It isn't too late.  We should stop this bill from becoming the law.