Sen. Elizabeth Warren (D-Mass.) has grown increasingly frustrated with the Federal Reserve’s slow regulatory response and is calling on Fed Chairman Jerome Powell to step on the gas.
Warren’s latest gripe is the banker-pay provisions of the Dodd-Frank reform law, which was enacted in 2010 after Congress bailed out the financial sector and required Wall Street to reduce risk.
Fourteen years later, Section 956 regulations banning bankers from receiving bonuses as a result of making risky bets with company assets have still not been implemented, and Warren places the blame entirely on Powell’s shoulders.
“You appear to be solely responsible for blocking the implementation of Section 956,” Warren wrote to Powell in a July 24 letter.
“Your consistent disregard for legal requirements demonstrates your contempt for the law and the American people,” she wrote.
In comments to The Hill, Warren said Powell’s delay was prioritizing “CEO friends” over ordinary Americans.
“With each passing day, Chairman Powell chooses to enrich his CEO friends over protecting American families,” she said.
A Fed representative told The Hill that it had received Warren’s letter and planned to respond.
The collapse of Silicon Valley Bank (SVB) and Signature Bank last year nearly brought the banking industry to collapse before the government stepped in and provided taxpayer-funded credit lines to the industry, but Warren noted that banks’ payment structures made things worse.
“The CEOs of SVB, Signature and First Republic siphoned every penny they could out of their businesses,” Warren said. “All three took big risks to boost the short-term stock prices of their banks, then sold off those high-flying shares in the hours before the banks failed.”
Last year, the Fed found “material weaknesses” in SVB’s payment plans in a post-collapse review and acknowledged a “cultural change” that allowed the central bank to overlook the standard rate exposure that ultimately led to SVB’s collapse.
The test team [SVB’s] Incentive compensation programs and the board’s oversight of previously undisclosed programs [a previous] Exams, and this
It was issued [a Matter Requiring Immediate Attention memorandum] “It’s about the effectiveness of the board,” Fed oversight chief Michael Barr said last year.
This is the only time Senator Warren has criticized the Fed in recent weeks for other significant delays related to the 2008 financial crisis.
In June, she finished her term with the end of so-called Basel III, a set of international reforms that require banks to hold more capital and cash, effectively making them less profitable but leaving them stronger in the event of a wider collapse.
“You should do your job and allow the board to convene to vote on a 16 percent recapitalization by June 30th, as global regulators determine is necessary to prevent another financial crisis,” Warren wrote to Powell in June.
These reforms, too, were first announced in 2010 when the Dodd-Frank Act was enacted but remained mired in regulatory purgatory.
“The implementation of G20 financial regulatory reforms continues to make progress but remains uneven,” the Swiss Financial Stability Board concluded in its latest annual report.
“The banking sector turmoil of March 2023 highlighted financial stability issues and some initial lessons for the implementation of the international resolution framework,” the group said, a sentiment echoed by Warren in her letter on Wednesday.
