The following is a transcript of an interview with Senator Elizabeth Warren, Democrat of Massachusetts, which aired on Face the Nation on Sunday, March 19, 2023.
Sen. Elizabeth Warren
MARGARET BRENNAN Let us now turn to our other big story, the banking crisis. We’re going to Boston and Democratic Senator Elizabeth Warren. Good morning, senator.
Sen. ELIZABETH WARREN: Good morning.
MARGARET BRENNAN: We’ve seen this multi-billion dollar attempt by the biggest banks to prop up one of the regional banks, First Republic. And even that hasn’t stopped fear in the banking sector at the moment. Do you think that one of those big banks that are too big to fail needs to be able to buy out this smaller bank to stop the bleeding?
Sen. WARREN: So right now I think we’re trying to figure out the different ways to prop up these banks. But the best way to understand this is to go back to the root causes of the crisis. Remember, in 2016, the CEOs of these banks, these multi-billion dollar banks, came to Washington to advocate for lighter regulation. Donald Trump ran for president and said he would relax regulations on these banks. He was then elected, he appoints regulators who ease regulation for these banks. Donald Trump then went to Congress and said pass legislation to make it easier for them to relax regulations on these banks even more. And then Jerome Powell literally put a flamethrower on those regulations –
MARGARET BRENNAN: Yes –
Sen. WARREN: to make them less and less effective. The reason I mention all this is because –
MARGARET BRENNAN: Well, I’m talking about the crisis we’re in right now. I appreciate where you’re going, but can we just start with the bleeding that we’re seeing in the banking sector right now, like you just said, to prop up the banks. Do you have to allow a merger to support them? And is there another white knight who could save one of these regional banks like First Republic?
Sen. WARREN: 1:53 You see, right, right now, the one that’s going to bail out all these banks is the federal government. And the First Republic –
MARGARET BRENNAN: The First Republic is still alive. It is an actively traded company. It’s not a failed bank.
Sen. WARREN: I understand that. I understand that. But it’s the fact that the federal government went to other banks and said, “We need extraordinary intervention here,” that these other banks stepped in and tried to prop it up. The point is that right now the Treasury Department, the Fed, all the state regulators, the FDIC, are trying to pull out all the stops to see what they can do to prop up these banks. And what I was trying to say is the reason they’re doing this is because this whole group of banks has been under-regulated for five years.
MARGARET BRENNAN: Yes –
Sen. WARREN: And people are very concerned about what’s under the hood when you open the hood because the regulators clearly haven’t done their job.
MARGARET BRENNAN: Okay, so-
Sen. WARREN: That’s why right now I’m calling for changes in the Fed’s approach to regulation and changes in Congress so that we reverse approval for relaxing those regulations.
MARGARET BRENNAN: Well, I know there’s some controversy about the regulation. You speak of a 2018 change to Dodd Frank, and I know that Barney Frank, one of the authors of those original regulations, has an argument with you about what actually happened here. But I want to talk about the now –
Sen. WARREN: Well, I wouldn’t call it optimization.
MARGARET BRENNAN: Well, Senator, but I want to ask you what Congress can do now, because it would be up to Congress to raise the FDIC insurance levels for those deposits over $250,000.
Sen. WARREN: Yes. To the right.
MARGARET BRENNAN: In this environment that we’re in… do you think Congress is ready for that?
Sen. WARREN: I think removing the FDIC insurance cap is a good move. Now the question is, where is the correct number when lifting? But realize that we have to do this because these banks are under-regulated, and if we remove the cap, we’re requiring – or even more relying on regulators to do their job.
MARGARET BRENNAN: Where would you lift that cap?
Sen. WARREN: The government supports them.
MARGARET BRENNAN: And for how much longer?
Sen. WARREN: That’s a question we need to work through. Is it $2 million? Is it $5 million? Is it 10 million? Small businesses need to be able to rely on getting their money to do the payroll and pay the utility bills. Nonprofit organizations need to be able to do this. These are not people who can examine the safety and soundness of their individual banks. That is the task of the supervisory authorities.
MARGARET BRENNAN: Well, I want to get straight to that specific point. But back on that topic, are you currently in discussion with the White House on a proposal to raise FDIC insurance levels? Are they asking you to? And is this possible to pass?
Sen. WARREN: I don’t want to talk about private conversations, but I will say that that’s one of the options that needs to be on the table right now.
MARGARET BRENNAN: You talked about reviewing the regulation of some of these smaller banks, these mid-sized banks. The bill you are proposing would also stress test institutions with assets in excess of $50 billion. It costs a lot of money to carry out the stress tests required by the big banks. In fact, according to the Wall Street Journal, such a program can cost a bank between $150 million and $250 million apiece. Wouldn’t that put the small banks out of business?
You know –
MARGARET BRENNAN: Or in the arms of one of the bigger banks?
I want you to think about what that means. When you refer to these as smaller banks, remember we are talking about SVB, a $200 billion bank. We’re talking about a $50 billion threshold here. And I want to put it this way. When they can’t afford to have someone look at them and ask questions like, “Have you offset the risk that interest rates won’t always remain at historic lows?” Do you have enough capital to keep this bank solvent?” and just questions like this, this bank is in serious trouble. And that’s the difficulty we have. They inject risk into the system. Remember when Gary Becker came to Congress and said, “You have to relax the rules on banks like mine because we don’t pose a risk.” What we have clearly discovered is that they pose a risk. And that means they need to be carefully monitored.
Jerome Powell needs to turn 180 degrees and take a closer look at these banks.
And Congress needs to tighten the rules.
Understood. Let us talk about it.
We also need to hold down these bank managers –
Good. Let’s talk about that with the Fed and what regulators should do with that oversight. There were already conditions and disclosures here and red lights were flashing in December. The SVB reported to the SEC that it had no interest rate hedges on its bond portfolio. In March, the San Francisco Fed found that banks in that district had the largest rate of decline and withdrawals in the country, possibly due to higher exposure to accounts over $250,000. So that was already outside in public space.
Sen. WARREN: Yes.
MARGARET BRENNAN: Why didn’t the top regulator in Silicon Valley implement the San Francisco Federal Reserve Act here? Do you have faith in its President, Mary Daly?
No, I do not know. The Fed should have acted, but the San Francisco Fed and the Federal Reserve Bank did. Remember that the Federal Reserve Bank and Jerome Powell are ultimately responsible for the oversight and supervision of these banks. And they have made it clear that they believe it is their job to relax regulations on these banks. We have now seen the aftermath.
MARGARET BRENNAN: But those were regulations that were publicly reported. I mean, that was missing signals from what’s out there. Think then – what’s the consequence for regulators in San Francisco and Washington?
Sen. WARREN: So, you see, that’s the point I’ve been trying to make all along. Jerome Powell has said he just wants to relax regulations on banks. That’s exactly why I turned him down as Chairman of the Federal Reserve Bank. I said he was a dangerous man in that position.
MARGARET BRENNAN you – you also opposed him when President Biden reappointed him, you – you consistently opposed him, I understand that –
Sen. WARREN: I defied him both times.
MARGARET BRENNAN: I understand that –
Sen. WARREN: That’s exactly right. And precisely for this reason. Because what he’s been doing all this time is relaxing regulations for the banks. So what we need to do –
At this moment, when we’re having this crisis of confidence, are you worried that you’re sowing more mistrust of the federal government?
Well what I do is be honest about what went wrong. I don’t think you build trust at all if you don’t start with why it’s broken and who it is – sorry, that’s responsible for that. We need accountability for our regulators, which have clearly failed at work, and that starts with Jerome Powell. And we need accountability for the executives of these big financial institutions. See, there should be clawbacks for Gary Becker and the others who are blowing up these banks. So you take back the big salaries –
Will this bill pass?
It definitely should. There should be support on both sides for this. And we should borrow them from ever being in banking again. That’s what we do with stockbrokers. We should do the same with bankers.
Elizabeth Waren. Thank you, Senator, for your time.
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