November 10, 2020

At Banking Hearing, Warren to Federal Reserve Vice Chairman: Do Your Job to Protect the American People -- Not Big Bank Investors

Warren criticizes Republicans' failure to pass meaningful stimulus relief and protect the American people; "Americans are now falling sick at the fastest rate since the pandemic began. It is time for you to stop letting these banks shove money out the door. Stop making excuses and do your job"

Washington, DC - In a Senate Banking Committee hearing today, United States Senator Elizabeth Warren (D-Mass.) criticized Republicans' failure to pass a relief bill as unemployment benefits ran out, evictions resumed, state budgets catered, and Black and Brown workers paid the high price. Senator Warren reinforced that if Republicans fail to act, it will result in a negative impact on the financial system, noting that firms' capital forecasts tend to be strongly dependent on the assumption that there will be additional rounds of economic stimulus.

Senator Warren further urged Federal Reserve Vice Chairman Quarles to act now to protect the American people and stop allowing big banks to shovel billions of dollars out the door in dividends, money that could be used to help banks survive this historic downturn.

Transcript:

U.S. Senate Committee on Banking, Housing and Urban Affairs

Tuesday, November 10, 2020

Senator Elizabeth Warren: Thank you, Mr. Chairman. And thank you to our witnesses for being here.

So all of you are in charge of making sure that regulating banks and credit unions to make sure that when the economy is in serious trouble, our financial system is going to be able to weather the storm. So, American's jobs, homes and livelihoods of millions of Americans depend on your getting this right.

One way the Federal Reserve monitors the soundness of the financial system is to conduct stress tests for the largest banks to see if they're going to be able to handle a severe downturn.

Now, in the most recent analysis, which was five months ago, the Fed noted that firms' capital forecasts quote, "tend to be strongly dependent on the assumption that there will be additional rounds of economic stimulus." In other words, the banks are in good shape if the federal government passes a strong stimulus bill to help people and businesses that are struggling because of the pandemic.

Vice Chair Quarles, the Fed's analysis was released in June. Did the assumption that was built into the stress test occur? Has Congress passed any additional economic stimulus since June?

Vice Chair Randal Quarles: Senator the answer to that is no. That Congress hasn't--

Senator Warren: Ok, so there has been no economic stimulus in the five months since you released that report saying how much the banks needed the economic stimulus. Now, six months ago, however, House Democrats passed a comprehensive relief bill. And for six months, Mitch McConnell has refused to let the Senate vote on that bill. In the meantime: unemployment benefits ran out, evictions resumed, state budgets cratered, and Black and Brown workers paid the highest price.

So, I'm worried because this creates a very dangerous cycle. When families and small businesses lose federal help and can't pay off their loans, then banks, and our whole financial system, are at risk. And sure enough, banks are now reporting that they anticipate higher loan default rates.

So Vice Chair Quarles without stimulus. Do the banks and the financial system run more risk?

(Vice Chair Quarles lost connection)

Senator Warren: I'll try to pick up where we were. So, what we were talking about is that the Fed conducted stress tests on the largest financial institutions, said that the financial institutions are healthy if but that the capital forecasts tend to be strongly dependent on the assumption that there will be additional rounds of economic stimulus. Then we established that was five months ago there had been no additional rounds of economic stimulus. And in the meantime, we've seen a lot of negative economic indicators and that indeed the banks are now saying that they anticipate higher default rates.

So, the question I had been asking, Vice Chair Quarles is without stimulus do these big banks and ultimately the financial system, run more risk?

Vice Chair Quarles: So, I should note that as you noted in your original question the banks projections themselves assume stimulus but our stress tests have not assumed any stimulus we want to ensure that the stress test that we--

Senator Warren: Well, sure enough. But that's not the question I'm asking you, and also the question about how much capital they've got obviously goes to the heart of your stress test. And you said right there in the stress test that the projections on capital depend on there being a stimulus.

And look, families need help, they've needed it all summer while Mitch McConnell has stubbornly crossed his arms and refused to let us vote. And now Senate Republicans are doing even more damage to our economy if they don't put a relief bill out that is big enough to get the job done, and up for a vote.

So, you know, this is a problem obviously at the Senate level. But the Fed itself is not powerless as well. You could act. Right now, you are allowing the big banks to continue to shovel billions of dollars out the door in dividends-money that could be used to help them survive an historic downturn. You could stop this outflow of money right now.

So, at what point, Mr. Vice Chairman, will the Fed actually do its job and suspend all dividend payments?

Vice Chair Quarles: Bank capital ratios have been rising over the last six months, Senator. And--

Senator Warren: That's not the question I asked you, Governor Quarles. What I asked you was what data, are you going to need to see in order to actually take action here?

We're watching a downturn in this economy, the stress tests specifically say they're based on the assumption there was going to be stimulus. Mitch McConnell has refused to let us get a stimulus.

So, I'm asking about the billions of dollars that the banks are still pushing out the door in dividends because ultimately the American taxpayer is going to be on the hook if banks are not able to meet their requirements going forward and need bailouts.

Vice Chair Quarles: So, we are running stress tests currently, and our stress tests do not assume any stimulus. We're running stress tests currently to determine the resilience of the banking sector, we ran them in the spring, we ran sensitivity analysis in the spring, we're now running additional stress tests taking into account what happened in the spring and the condition of the banking industry and economy as a result of that. We'll have the results of those stress tests revealed publicly at a bank by bank level by the middle of December, and then we will use that information to inform our determination, whether we would continue the suspension of the 70% of capital distributions that we have already imposed on the banks and the limitation on the dividends that they may pay to adjust that in some way.

Senator Warren : Let me just stop you there because we've just already had to do this for a long time. Your job is to protect the American people, not the bank investors and I don't believe you're doing your job. Mitch McConnell has changed his tune, he said he wants to pass a relief bill before the end of the year and I think that's great. But America needs a real relief bill, not a fig leaf. you know, there aren't enough fig leaves on the entire planet to cover up the Republican Party's monumental failure to take this coronavirus seriously. So, Americans are now falling sick at the fastest rate since the pandemic began. It is time for you to stop letting these banks shove money out the door. Stop making excuses and do your job.

So, thank you Mr. Chairman.

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