The following is a transcript of an interview with Sen. Elizabeth Warren, Democrat of Massachusetts, that aired on “Face the Nation” on Sunday, March 19, 2023.
ITS. ELIZABETH WARREN
MARGARET BRENNAN We want to turn now to our other big story, the banking crisis. We go to Boston, and Democratic Senator Elizabeth Warren. Good morning to you, Senator.
SEN. ELIZABETH WARREN: Good morning.
MARGARET BRENNAN: We saw this multibillion dollar attempt by the biggest banks to shore up one of the regional banks, First Republic. And even that hasn’t stopped the anxiety in the banking sector right now. Do you think that in order to stop the bleeding, one of those big banks too big to fail, needs to be able to buy up that smaller bank?
SEN. WARREN: So I think that right now, what we’re trying to do is figure out the different ways to shore up these banks. But the best way to understand that is to go back to what caused the crisis to begin with. Remember that back in 2016, the CEOs of these banks, of these multibillion dollar size banks, came to Washington, they’re lobbying for lighter regulation. Donald Trump ran for president saying he would lighten the regulations on these banks. He then was elected, he appoints regulators who lightened the regulations on these banks. Donald Trump then went to Congress, and he said, pass laws to make it easier for them to lighten the regulations on these banks even more. And then Jerome Powell, just literally took a flame thrower to these regulations–
MARGARET BRENNAN: Yeah–
SEN. WARREN: in order to make them less and less effective. The reason I mention all this is because–
MARGARET BRENNAN: Well, I’m talking about the crisis that we’re in right now, though. I appreciate where you’re going there, but can we just start on the bleeding that we are seeing in the banking sector right now, like you just said, to shore up the banks. To shore them up, do you need to allow for a merger? And is there any other white knight who could come in to save one of these regional banks, like First Republic?
SEN. WARREN: 1:53 Look, right, right now, the one who’s saving all of these banks is the federal government. And the First Republic–
MARGARET BRENNAN: First Republic is still living. It’s an actively traded company. It’s not a failed bank.
SEN. WARREN: I understand that. I understand that. But it is the fact that the federal government went to other banks, and said, “We need an extraordinary intervention here,” that these other banks intervened and have tried to prop it up. The point is, right now the Treasury Department, the Fed, all of the government regulators, the FDIC, are trying to fire on all cylinders, to try to figure out what they can do to prop up these banks. And the point I was trying to make, is the reason they’re doing this is because this whole tranche of banks has been under-regulated for five years now.
MARGARET BRENNAN: Yeah–
SEN. WARREN: And people are very concerned about when you lift the hood, what’s under the hood, since the regulators clearly have not been on top of their job.
MARGARET BRENNAN: Okay, so-
SEN. WARREN: It’s the reason that I’m calling right now for changes in the Fed in its regulatory approach, and changes in Congress so that we’ve rolled back the authorization to lighten those regulations.
MARGARET BRENNAN: Well, I know there’s some dispute on the regulation. You’re talking about a tweak in 2018 to Dodd Frank, and I know Barney Frank, one of the authors of that original regulations, a dispute with you in regard to what actually happened here. But I want to talk about the now–
SEN. WARREN: Well, I wouldn’t call it a tweak.
MARGARET BRENNAN: Well, Senator, though, I want to ask you about what Congress can do now, because it would be up to Congress to lift the FDIC insurance levels for those deposits above $250,000.
SEN. WARREN: Yes. Right.
MARGARET BRENNAN: In this environment we are in…do you think there’s will in Congress to do that?
SEN. WARREN: I think that lifting the FDIC insurance cap is a good move. Now the question is, where’s the right number on lifting it? But recognize that we have to do this, because these banks are under-regulated, and if we lift the cap, we are requiring – or relying even more heavily on the regulators to do their jobs.
MARGARET BRENNAN: Where would you lift that cap to?
SEN. WARREN: The government is backing them up.
MARGARET BRENNAN: And for how long?
SEN. WARREN: This is a question we got to work through. Is-is it $2 million? Is it $5 million? Is it 10 million? Small businesses need to be able to count on getting their money to make payroll, to pay the utility bills. Non-profits need to be able to do that. These are not folks who can investigate the safety and soundness of their individual banks. That’s the job the regulators are supposed to do.
MARGARET BRENNAN: Well, I want to get to that particular point in a moment. But back on this, are you talking to the White House currently about a proposal on lifting the FDIC insurance levels? Are they asking you to do that? And is this possible to pass?
SEN. WARREN: I don’t want to talk about private conversations, but I will say it is one of the options that’s got to be on the table right now.
MARGARET BRENNAN: You talked about reviewing regulation of some of these smaller banks, these mid-sized banks. The bill you are putting forward would also put in stress testing on institutions with more than $50 billion in assets. For them to carry out stress tests, as the big banks are required to do, that’s a lot of money. In fact, the Wall Street Journal says, a program like that can cost a bank between $150 to $250 million a piece. Wouldn’t that force the small banks out of business?
You know –
MARGARET BRENNAN: Or into the arms of one of the bigger banks?
I want you to think about what that means. When you describe these as smaller banks, keep in mind, we are talking about SVB, a $200 billion bank. We’re talking about the threshold here is $50 billion dollars. And I want to put it this way. If they can’t afford to have someone look at them and ask questions like, “Did you offset the risk that interest rates would not always stay at historic lows? Do you have enough capital in order to keep this bank solvent?”and basic questions like that, then this bank has serious problems. And this is- this is the difficulty we’ve got. They inject risk into the system. Remember, when Gary Becker came, came to Congress and said, “You need to lighten regulations on banks like mine, because we pose no risk.” What we have clearly discovered is they do pose risk. And that means they need to be carefully supervised.
Jerome Powell needs to turn around 180 degrees and put these banks under more careful scrutiny.
And Congress needs to toughen the regulations.
Understood. Let’s talk about that.
We also need to hold these bank executives –
Good. Let’s talk about that with the Fed, and-and what the regulators are supposed to be doing with that oversight. There were already, you know, requirements and public disclosures here and there were flashing red lights in December. SVB reported to the SEC, it had no interest rate hedges on its bond portfolio. In March, the San Francisco Fed this is publicly available, noted the banks in that district had the largest pace of decline and withdrawals in the country, perhaps due to higher exposure to accounts above $250,000. So this was already out there in the public space.
SEN. WARREN: Yeah.
MARGARET BRENNAN: Why didn’t the chief regulator in Silicon Valley area the San Francisco Federal Reserve Act here? Do you have confidence in its President Mary Daly?
No, I do not. The Fed should have acted, but the San Francisco Fed and the Federal Reserve Bank. Remember the Federal Reserve Bank and Jerome Powell are ultimately responsible for the oversight and supervision of these banks. And they have made clear that they think their job is to lighten regulations on these banks. We’ve now seen the consequences.
MARGARET BRENNAN: But these were regulations that were- that were being publicly reported. I mean, this was missing signals of what’s out there. Do you think then- what’s the consequence for regulators in San Francisco and Washington?
SEN. WARREN: So, look, this is the point I’ve been trying to make all along. Jerome Powell has said that all he wants to do is lighten regulations on the banks. I opposed him as Chairman of the Federal Reserve Bank precisely for that reason. I said he was a dangerous man to have in this position.
MARGARET BRENNAN You-you opposed him when President Biden reappointed him as well, you-you opposed him consistently, I understand that–
SEN. WARREN: I opposed him both times.
MARGARET BRENNAN: I understand that–
SEN. WARREN: That’s exactly right. And for exactly this reason. Because what he has done all along is lightened regulations on the banks. And so, what we need to do–
Do you worry though, in this moment, where we have this crisis of confidence that you are sowing more distrust of the federal government right now?
Well, what I’m doing is being honest about what’s gone wrong.I don’t think you build any trust at all, if you don’t start with why it’s broken, and who it is – excuse me, that is responsible for that. We need accountability for our regulators who clearly fell down on the job, and that starts with Jerome Powell. And we need accountability for the executives of these large financial institutions. Look, there should be clawbacks for Gary Becker and the others who explode these banks. So you take back the big salaries –
Will that bill pass?
It certainly should. On both sides, there should be support for this. And we should also borrow them from ever being in banking again. We do that with stockbrokers. We should do the same thing with bankers.
Elizabeth Warren. Thank you very much, Senator, for your time.