Warren Calls on Chair Powell to Finalize Capital Standards Rules for Giant Banks Quickly, Resist Bank Lobby Pressure
Fed’s Capital Proposal Follows Years of Unnecessary Delays Under Powell’s Tenure “As the big bank lobby prepares its targeted assault on the Fed’s new capital proposal, your failure thus far to voice clear support for stronger rules that protect taxpayers and the economy - and your indications that you support potentially weakening the Fed’s proposal - provides them with cover.”
Washington, D.C. – United States Senator Elizabeth Warren (D-Mass.), a member of the Senate Banking, Housing, and Urban Affairs Committee, sent a letter to Federal Reserve (Fed) Chair Jerome Powell, calling on Chair Powell to quickly finalize proposed rules to strengthen capital standards for the country’s largest banks, in line with the international Basel III agreement, and resist any bank lobby pressure to water down these rules.
“On July 27, 2023, the Fed voted to advance proposed rules to strengthen capital standards for the nation’s biggest banks, implementing the remaining provisions of the international Basel III agreement that was initially launched in response to the 2008 financial crisis and finalized in December 2017. This was an important and long overdue step forward, and I urge you to resist industry pressure to weaken the proposal and finalize the rules as quickly as possible. But I am concerned that your intent to seek ‘potential modifications to the proposals’ means that you will seek to weaken them. This would be a grievous error,” wrote Senator Warren.
The Fed’s proposal has been under development for the entirety of Jerome Powell’s service on the Fed Board, including during his tenure as Chair. The proposal “would modify large bank capital requirements to better reflect underlying risks and increase the consistency of how banks measure their risks” and “seeks to further strengthen the banking system by applying a broader set of capital requirements to more large banks” in response to the March 2023 bank crisis. This would include eliminating a regulatory loophole allowing large regional banks to exclude unrealized losses and gains from securities in their capital calculations – a loophole that helped Silicon Valley Bank (SVB) mask the deterioration of its balance sheet before it crashed. Senator Warren argued that this proposal is even more urgent following the recent bank crisis, given the Fed’s post-mortem analysis of SVB’s failure found that “while the proximate cause of SVB’s failure was a liquidity run, the underlying issue was concern about its solvency.”
Senator Warren notes in the letter that the giant banks have been engaging in a massive lobbying effort to fend off higher capital requirements, which could impact the amount of profits banks return to their investors through stock buybacks, which in turn may reduce bank executive bonuses and compensation. Just days before the failures of SVB and Signature Bank, bank lobbyists and their allies in Congress were pressing Chair Powell to stave off increased capital requirements, and lobbying expenditures by major banking trade groups and big banks from April to June of 2023 were nearly 20 percent higher than expenditures during the same period last year.
“I am concerned that even though you voted to advance the Fed’s proposed rule, your tepid embrace of the proposal seems to suggest that you may share Wall Street executives’ concerns that stronger capital requirements will eat into their bonuses. Your opening statement on the proposal notes that you ‘support putting’ the proposal ‘out for comment’ but at no point did you indicate that you support the proposed rule or even recognize the need for it… Rather than declare clear support for stronger capital standards, the bulk of your statement is focused on your interest in seeing ‘potential modifications to the proposals,’ raising concerns that you intend to water down the proposed rules in line with the banking industry’s wishes. This would be at odds with your comments following the release of the Fed’s post-mortem of SVB’s failure in which you clearly stated that you ‘agree with and support (Vice Chair for Supervision Barr’s) recommendations to address our rules and supervisory practices’ – which included improving capital standards,” continued Senator Warren.
“Your uncertain positioning on the Fed’s proposal, just months after the banking system was nearly brought to its knees by the sudden collapse of banks you enthusiastically supported deregulating, reveals a broader lack of leadership. Your tenure as Fed Chair has been defined by delivering on Wall Street executives’ wish lists, most notably through your support of the 2018 Dodd-Frank rollback that ‘was designed to ensure that lenders with between $50 billion and $250 billion in assets — then covering about two dozen of the country’s largest banks, including SVB — no longer faced a range of strict rules that apply to their bigger counterparts’... Under your watch and with your support, the Fed Board also weakened oversight of the regulatory framework for the biggest banks well beyond what was required of the law,” continued Senator Warren.
“Following the collapse of SVB and Signature, you admitted that ‘I’ve been chair(ing) the (Fed) board for five-plus years now, and I fully recognize that we made mistakes … we need to do better … I do feel that I’m personally accountable to do what I can to foster measures that will address the problems.” The Fed’s proposal to strengthen capital requirements for big banks provides you an opportunity to do so. It is critical for the Fed’s credibility as a regulator that the Chair clearly support the United States’ leadership in implementing the Basel reforms. I strongly urge you to accept accountability for your failures, resist industry pressure to weaken and further delay the rules, and finalize this proposal as quickly as possible,” concluded Senator Warren.
Senator Warren has led extensive oversight efforts to hold the Fed, Chair Powell, and other regulators accountable for ethics, supervision, and regulation failures:
- On August 4, 2023, Senator Warren and Congresswoman Katie Porter (D-Calif.) sent a letter to Martin J. Gruenberg, Chairman of the Federal Deposit Insurance Corporation (FDIC), urging him to act aggressively to ensure the nation’s biggest banks are accurately reporting their uninsured deposits and contributing their full and fair obligations to the Deposit Insurance Fund. The letter comes in response to a FDIC public notice that some large banks are not reporting their uninsured deposits in accordance with FDIC instructions.
- On July 25, 2023, Senators Warren and Rick Scott (R-Fla.) sent a letter to Fed Inspector General Mark Bialek, highlighting his inherent conflicts of interest and the need to make the position a Presidential-appointed, Senate-confirmed role.
- On May 17, 2023, chairing a hearing of the Senate Banking, Housing, and Urban Affairs Committee Subcommittee on Economic Policy, Senator Warren questioned Fed Inspector General Mark Bialek and a panel of academic experts on the independence of the IG office and the regulatory and supervisory failures that contributed to Silicon Valley Bank’s collapse.
- On May 17, Senators Warren and Rick Scott (R-Fla.) sent a letter to Federal Reserve (Fed) Inspector General (IG) Mark Bialek, reiterating the need to make his position a presidentially-appointed, Senate-confirmed role to provide greater accountability at the Fed.
- On May 17, 2023, Senator Warren sent a letter to Mark Bialek, IG of the Federal Reserve, rebuking him for his failure to hold Fed Chair Powell and senior Fed officials accountable for major ethics breaches, and the IG’s sham investigation of the Fed trading scandal, both of which undermine his recommendations for strengthening the Fed’s disturbingly weak ethics rules.
- On May 3, 2023, Senator Warren and John Kennedy (R-La.) sent a letter to the Fed IG, inviting him to testify at their hearing on the Fed’s role overseeing Silicon Valley Bank (SVB) before its failure and to consider legislative reforms that strengthen transparency and accountability at the Fed.
- On April 28, 2023, following the Fed’s report on SVB’s failure, Senator Warren released a statement calling on the Fed to immediately adopt stricter bank oversight and called out Chair Powell’s failure to supervise and regulate banks that posed a systemic risk to the economy.
- On March 31, 2023, Senator Warren and Thom Tillis (R-N.C.) led a bipartisan group of senators to reintroduce the Financial Regulators Transparency Act, bipartisan legislation that would subject regional Federal Reserve Banks to the Freedom of Information Act (FOIA) and ensure their responsiveness to congressional and public information requests.
- On March 22, 2023, Senators Warren and Rick Scott (R-Fla.) introduced bipartisan legislation to 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.
- On March 22, 2023, Senator Warren led 11 senators in a letter to Fed’s Vice Chair for Supervision, Michael Barr, calling on him to exercise the Fed’s authority to apply stronger regulation and supervision to banks with assets totaling $100 to $250 billion.
- On March 19, 2023, Senator Warren sent a letter to the Inspectors General at the Department of Treasury, the FDIC, and the Fed, urging them to immediately open a thorough, independent investigation of the causes of the bank management and regulatory and supervisory problems that resulted in the failure of Silicon Valley Bank and Signature Bank and deliver preliminary results to Congress and the public within 30 days.
- On March 16, 2023, Senator Warren sent a letter to Fed Chair Powell, criticizing his leadership failures at the Fed that directly contributed to the failures of SVB and Signature Bank, and the significant risk to the banking system and the economy unleashed by those collapses.
- On March 15, 2023, Senator Warren delivered a speech on the Senate Floor about the failures of SVB and Signature, spoke about her new legislation, the Secure Viable Banking Act, which would reverse the mistakes that Congress and President Trump made with rollbacks of Dodd-Frank
- On March 14, 2023, Senator Warren called on Chair Powell to recuse himself from the Fed’s review of the SVB failure.
- In December 2022, Senator Warren and then-Senator Pat Toomey (R-Pa.) introduced the bipartisan Financial Regulators Transparency Act, legislation that would strengthen Federal Reserve accountability and ensure that no financial regulator can withhold critical ethics-related information from Congress.
- Senator Warren has previously sent letters to Chair Powell on November 7, 2022, August 11, 2022, January 10, 2022, December 7, 2021, and October 21, 2021, and requested that the Fed publicly release additional information about its trading scandal, but the Fed has failed to adequately respond.
- In October 2022, Senator Warren called out Atlanta Fed President Raphael Bostic for his “alarming failure” to disclose financial transactions, which speaks to “further evidence of the depth of the ethics problem at the Fed.”
- In February 2022, Senator Warren secured significant ethics commitments from several Fed Board nominees, including: Dr. Lael Brainard, nominee to serve as Vice Chair on the Federal Reserve Board, Sarah Bloom Raskin, nominee to serve as Vice Chair for Supervision on the Federal Reserve Board of Governors, and Drs. Lisa Cook and Philip Jefferson, nominees to serve as members of the Board of Governors. Bloom Raskin, Cook, and Jefferson agreed to a four year recusal period from matters which they oversee on the Board of Governors, not to seek a waiver from these recusals, and not to seek employment or compensation from financial services companies for four years after leaving government service. In May 2022, Senator Warren also secured these commitments from Michael Barr, who was ultimately confirmed as Fed Vice Chair for Supervision.
- In January 2022, Senator Warren called on Chair Powell to immediately release information related to Fed officials' trades and changes to the Fed’s ethics policy after new and troubling revelations about then-Vice Chair Richard Clarida’s trades in March 2020.
- As the ethics scandals involving top level Fed officials unfolded in September and October of 2021, Senator Warren called out the culture of corruption at the Fed and raised deep concerns over conflicts of interests that have undermined public confidence in the Federal Reserve System.
- In an October 2021 speech on the floor of the Senate, Senator Warren called out the culture of corruption among high-ranking Fed after recent reports of ethically questionable financial activity by high-ranking Fed officials, including then-Vice Chair Clarida and two regional Fed presidents.
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