After 2 banks collapsed, Sen. Warren blames the loosening of restrictions
LEILA FADEL, HOST:
Right now, other midsized banks are taking pains to assure their investors and depositors they won't be the next Silicon Valley Bank or Signature Bank. Senator Elizabeth Warren is on the line to discuss what might have prevented those implosions and what should be done to avoid future collapses. Good morning, Senator.
ELIZABETH WARREN: Good morning.
FADEL: So, Senator Warren, you've said the blame for these bank failures lies in Washington. Walk us through why you say that.
WARREN: So, remember, after the crash in 2008, we understood that if you don't put pretty strict regulations on these big banks, they'll go out and boost their profits by taking on a lot of risks. And so Dodd-Frank was passed and said, for the big banks, we're really going to put some stringent controls in place...
FADEL: Right.
WARREN: ...So-called stress tests and higher capital requirements and more regular and closer looks at those banks. And that worked. And then in 2018, the Republicans, under Donald Trump, said, no, we need to loosen those regulations. And they got some help from the Democrats and, ultimately, passed a bill that rolled back that kind of protection for banks that were bigger than $50 billion but smaller than $250 billion. So this slice of big banks - and their argument, by the way, at the time, the banks, is they said we're too small to cause any problems in the economy.
Now, you know, I warned, this is not going to work. This is not going to end well. And sure enough, we saw the consequences of that over the weekend. These very large banks that had very aggressively taken on risk - SVB had seen its profits grow by 40% in the last three years, and their CEO had paid himself a big salary and lots of bonuses for all the executives. And it all worked great right up until the bank exploded. Washington needs to put those stricter regulations in place. So that's a big part of the problem.
FADEL: Now, former congressman and former board member of Signature Bank Barney Frank, who ended up supporting those loosening of restrictions, told my colleague Juana Summers on All Things Considered it wasn't the rollback of the Dodd-Frank Act in the case of Signature Bank but crypto that fueled the bank failures. What's your response to that?
WARREN: Well, you know, let's remember, we watched two banks fail simultaneously. And one of them, it's a very different story. In both cases, it was about loading up on risk in order to boost the profits. And, look, that's what some of these bank executives want to do. They say, gee, this is a - you know, a great opportunity to make money by loading up on risk. It is the job of the regulators to stop them. And rolling back those regulations is why the bank regulators weren't in a position to stop it. Now, I should also be clear here, it's not just Congress.
FADEL: Yeah.
WARREN: It's also the Fed that stepped in.
FADEL: Well, speaking of that, the Fed announced it's reviewing its own oversight of Silicon Valley Bank in light of what's happened. What do you want to see from that review, and should the Federal Reserve be investigating itself?
WARREN: Look, for this inquiry to have any credibility, Chair Powell must recuse himself. And the reason behind that is that when the law was weakened, it permitted the Fed to loosen those regulations. Chair Powell led the charge on that. He not only loosened the regulations, he went further than some people thought the law permitted. You know, this is part of the reason that I opposed him for his renomination to be chair of the Fed. I thought that this was a very dangerous move on his part. He did not follow through on the regulation and supervision obligations of the Fed. And now we've watched at least two banks explode over that.
FADEL: Now, in your view, was waiving the insurance cap to contain the fear, really, around this the right move to get depositors back all their money?
WARREN: You know, I want to start by saying, I'm so glad that Joe Biden is president of the United States right now. He's been very calm in this, very steady. And I very much understand why it was necessary to protect small businesses, to protect nonprofits, to say that - you know, these businesses, they weren't making profits off the banks. Their job was just to put money in the bank so they could make payroll next Monday. And stepping in and backstopping that so they can count on getting access to their money, I think that is the right thing to do. Now, for the giant so-called depositor, the one who really acts more like an investor, who has a billion dollars in that bank, giving those guys help - no, I'm not so on board for that.
FADEL: What's your message to people who use smaller regional banks who are worried right now about their deposits?
WARREN: The deposits are going to be fine. The federal government has stepped in and said, we're going to make sure that depositors are protected. And that means everyone should breathe a big sigh of relief over that issue. Now we need to make changes in the law so this problem doesn't happen again.
FADEL: Senator Elizabeth Warren, Democrat from Massachusetts. Thank you so much, Senator, for your time.
WARREN: Thank you for having me.
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