The bank-deregulation bill that recently passed the U.S. Senate threatens the financial system and undermines consumer protections -- and it could get even worse as it moves through the House of Representatives.
The Senate bill claims to solve a problem -- one that actually doesn’t exist. Bank lobbyists declare that broad deregulation is needed to spur growth and lending, but banks of all sizes are already making record profits and consumer and small business lending is robust.
Meanwhile, the Senate bill poses real risk to the economy. Despite being sold as a bill for small banks, it includes three big benefits for the largest Wall Street banks. It empowers these banks to sue the Federal Reserve if they think the rules are too tough, which financial regulatory experts say “will produce a race-to-the-bottom dynamic that will dramatically increase the chance of another financial crisis.” It opens the door for banks like JPMorgan Chase & Co. and Citigroup Inc. to hold significantly less capital than they do now. And it weakens a requirement that big Wall Street banks hold enough liquid assets to withstand a financial panic.
Former bank regulators, both Democratic and Republican, oppose these changes because they increase the risk of another crisis. And the changes are significant enough that even skeptics of bank regulation are concerned. The Bloomberg View editorial board wrote that that bill “chip[s] away at the bedrock of financial resilience -- the equity capital that allows banks to absorb losses and keep on lending in bad times,” and warned that this “could prove very costly the next time a crisis hits.” Similarly, the Wall Street Journal editorial board worried that the bill includes “a couple of provisions that ease capital and liquidity standards for the giants [that] will make the financial system more vulnerable in a panic.”
Beyond rollbacks for the biggest Wall Street banks, the bill also deregulates the next tier of banks -- the 25 banks with between $50 billion and $250 billion in assets. These are not community banks. They are huge banks in their own right, and they collectively received almost $50 billion in taxpayer bailout money in the 2008 crisis. Banks of this size can threaten the financial system, as shown by the central role Countrywide Financial Corp. -- a $200 billion bank -- played in the build-up to the crash. According to the nonpartisan Congressional Budget Office, the bill frees these banks from additional federal oversight and increases the chances of another taxpayer bailout.
The bill also undermines critical consumer and civil-rights protections. It guts new rules that protect people who buy mobile homes, exposing working families to new costs and fees. And despite damning new evidence of widespread racial discrimination in the housing market, the bill exempts 85 percent of banks from new data-reporting requirements that are integral to exposing and eliminating that discrimination.
Unfortunately, the House of Representatives is poised to make the Senate bill even more dangerous. Jeb Hensarling, the Republican chairman of the House Financial Services Committee, has already announced that he will not support the bill unless it includes dozens of additional industry favors. House Speaker Paul Ryan has endorsed Hensarling’s position, which means the House won’t pass the Senate bill until Hensarling’s wish-list is tacked onto it.
What’s on that list? A provision that would likely exempt even more big banks -- including those with almost a half-trillion dollars in assets -- from stricter federal oversight. A provision that weakens stress-test requirements for the country’s biggest banks. A section that repeals existing protections to help prevent borrowers from getting gouged on title-insurance fees when they get a mortgage. And a section to exempt all but a few dozen banks from supervision by the Consumer Financial Protection Bureau. That’s just the beginning.
Although Senate supporters of the banking bill said they would hold the line against any further industry favors, Hensarling has already succeeded in adding one of the items on his wish-list onto the recent government spending bill. That provision would benefit a handful of big private-equity firms while putting ordinary investors at greater risk.
If the Senate bill had only been about targeted changes for community banks and credit unions, it could have passed years ago. But the community banks have been held hostage to extract dangerous concessions for the giant banks. As a result, this bill appears to be the latest in a long line of bipartisan deregulatory bills that have helped lead to a financial crisis -- like the bipartisan savings and loan deregulation bill in the 1980s that preceded the S&L crisis, and the bipartisan deregulatory bills in 1999 and 2000 that set the stage for the 2008 crisis.
The Senate banking bill is dangerous enough already. Senate supporters should oppose the addition of even a single new item from Hensarling’s wish-list to the bill – and oppose any effort to add items from this list to other pieces of legislation too. Now is not the time to increase the risk of another financial crisis that will inevitably hit America’s working families hardest.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
By Edward Epstein and Greg Giroux Liberal firebrand Elizabeth Warren has a short-term strategy -- to oppose President Donald Trump and his Republican allies resolutely in the 115th Congress -- and a longer-term plan to win re-election to her Senate seat in 2018. “The people of Massachusetts didn’t send me to the Senate to roll over and play dead while Donald Trump and his team of billionaires, bigots and Wall Street bankers crush the working people of our commonwealth and this country,” the former Harvard University law professor said in early January 2017, announcing her plans to run for a second term in 2018 and to try to block Trump initiatives in the Senate. And while she told MSNBC in April 2017 she wouldn’t run for president in 2020, her high profile appearances nationally could help lay the groundwork for a race for the Democratic nomination. It didn’t take long for Warren, a hero to liberals and a bête noire to conservatives and Wall Street, to become the focus of attention in the 115th Congress. In February 2017, Senate Republicans, on a party-line vote, issued a rare rebuke to Warren, saying she was out of line for what they said were comments that “impugned” the integrity of Alabama Senator Jeff Sessions, Trump’s nominee for attorney general. Senate leader Mitch McConnell’s statement, “She was warned. She was given an explanation. Nevertheless, she persisted,” created the “Nevertheless, she persisted” rallying cry for supporters who vowed to resist the Trump administration. The brouhaha seemed only to embolden Warren further and came ahead of her latest book, “This Fight Is Our Fight: The Battle to Save America’s Middle Class,” which was published in April 2017. That book focused on the message that first brought Warren national attention and victory in her 2012 win over Republican Senator Scott Brown in an expensive and nationally publicized race. Warren says the political system is rigged in favor of big banks, lobbyists and other well-heeled interests against middle-class and poor families struggling to make ends meet. Warren, who proposed creation of the Consumer Financial Protection Bureau that eventually came into being as part of the Dodd-Frank financial regulation law of 2010, is now on the front lines of defending the CFPB and the broader law from Republican attempts to weaken or abolish them. Her legislative priorities include making student loans more affordable, prodding the Federal Reserve to be more aggressive in policing banks, raising the minimum wage, and reducing income inequality. Her liberal credentials are reflected in her lifetime ratings of 98 percent from the AFL-CIO and 4 percent from the American Conservative Union. One of her major across-the-aisle efforts is her work with Republican Charles Grassley of Iowa on a bill they say would help the millions of Americans with hearing loss save money by making many types of hearing aids available over the counter. When Barack Obama was president she was mostly in alignment with his goals. But early in the 114th Congress, Warren pushed back against the president’s trade policy, including a proposed pact with 12 Pacific Rim nations. In April 2015, Warren said that the Trans-Pacific Partnership would give “extraordinary power” to multinational corporations at the expense of workers. Also in 2014, she led a successful campaign against Obama’s nomination of Lazard Ltd. investment banker Antonio Weiss to be a Treasury under secretary. Warren said the administration didn’t need more Wall Street veterans and also was critical of Weiss’s role in arranging inversions, the transactions in which U.S. multinational corporations shift their addresses abroad to reduce their tax liability. Weiss withdrew and became a counselor to the department instead. Warren says she expected to make a career in academia and only stumbled into politics. “I started as a researcher; I didn’t start out to be a crusader,” Warren said in a January 2010 interview with The Progressive. Warren’s transition from academic policy wonk to involvement in public policy began in 1995, when she was already more than a decade into her life in academia. Mike Synar, a former Democratic House member from Oklahoma, was leading a commission to review bankruptcy laws, Warren’s area of expertise, he and recruited her to serve on the panel. She focused on developing policy ideas while leaving the politics to him. Her work on bankruptcy issues attracted the attention of Democrat Edward Kennedy, whose Senate seat she now holds. At Warren’s urging, Kennedy agreed to lead the fight against a bankruptcy bill backed by credit card companies that Warren said were squeezing consumers buffeted by medical bills and job losses. Warren was so relieved by Kennedy’s willingness to take a leading role that she cried on the elevator after leaving his office. “Senator Kennedy changed my life that day,” Warren said at a March 2015 ceremony dedicating the Edward M. Kennedy Institute in Boston. In 2003, she and her daughter Amelia Warren Tyagi co-authored “The Two-Income Trap: Why Middle Class Mothers and Fathers Are Going Broke.” The “trap” referred to how two-income families would have less money than a one-income family from a generation earlier, after accounting for the rising cost of living. In late 2008, then-Senate Majority Leader Harry Reid recruited Warren to lead a five-person congressional oversight panel created to oversee the implementation of the Troubled Asset Relief Program, the $700 billion bailout of the financial markets. She was a special adviser to the CFPB from September 2010 to July 2011, though because of opposition by some lawmakers on Capitol Hill and the banks, she was passed over for head of the bureau in favor of Richard Cordray, a former Ohio attorney general. Early Years Warren was born and reared in Oklahoma and was exposed to economic hardship as a child. Her father had a heart attack when she was 12, followed by a cut in pay at his job and an increase in medical bills. The family then lost its car and Warren’s mother took a job at Sears to cover the mortgage. Warren babysat and worked as a waitress at her aunt’s Mexican restaurant. She was the first member of her family to graduate from college. A high school graduate at age 16, she got a scholarship to George Washington University, but left after two years. She married at age 19 and moved to Texas, where she finished her undergraduate studies at the University of Houston. She entered law school at Rutgers University in New Jersey when her daughter was 2 years old. After getting her law degree, she taught at a number of universities before landing at Harvard law in the early 1990s. Her husband, Bruce Mann, is also a Harvard law professor. Senate Campaign In July 2011, the same day that Obama nominated Cordray to lead the consumer protection bureau, the president and Warren talked about the 2012 Massachusetts Senate race, which national Democratic and progressive groups were petitioning her to enter. Warren announced her candidacy in September 2011. Warren was unopposed for the Democratic nomination. She was up against Republican Brown, who had won a special election in January 2010 to fill the remainder of the final term of Kennedy, who died in August 2009. Polls showed the race close, and Brown and Warren spent more than $77 million between them. Warren benefited from sharing a ballot with Obama, who beat Republican challenger Mitt Romney by 23 percentage points in Massachusetts, and Brown couldn’t win enough ticket-splitters. Warren won by more than 7 percentage points. (In June 2017, Warren joined most senators in voting to confirm Brown as U.S. ambassador to New Zealand.) Warren decided against running for president in 2016, and then became an outspoken critic of Trump as she campaigned for Hillary Clinton. Trump responded by deriding Warren as “Pocahantas,” a reference to her self-proclaimed American Indian heritage. Updated June 30, 2017
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