At Hearing, Warren and Yellen Confirm Importance of Strong Bank Capital Standards
Warren Debunks Myths About Basel III Capital Standards Rule, Which Would Have No Impact on Community Banks; Rule Would Only Apply to 37 Largest Banks
“The biggest banks want to be able to push hundreds of millions of dollars out the door to investors and CEOs while the banks take on more risks and then when things go wrong—and they will go wrong—they want taxpayers to bail them out again… I am sick of bailouts, and I am sick of banks that lie to the American people."
Washington, D.C. – At a hearing of the Senate Banking, Housing, and Urban Affairs Committee, U.S. Senator Elizabeth Warren (D-Mass.) called out giant banks’ lobbying against stronger capital requirements in order to protect their profits and executive compensation. Senator Warren made clear that the new Fed’s proposed Basel III rule to strengthen capital requirements for banks with more than $100 billion in assets would help protect the financial system from taxpayer-funded bailouts and would only impact a few giant banks.
In questioning, Secretary of the Treasury Janet Yellen clarified that the rule is “not about community banks” and does not apply to community banks, but is about “diminish(ing) the odds of a systemic financial crisis” if a billionaire bank crashes.
Senator Warren blasted the Big Bank lobby for spending millions to lobby against the rule, and made clear that banks are concerned the rule would bite into stock buybacks and executive compensation. She noted that Morgan Stanley recently said that the bank lobby is fighting to water down capital rules so they can create “a significant increase in buybacks.”
Transcript: The Financial Stability Oversight Council Annual Report to Congress
U.S. Senate Committee on Banking, Housing, and Urban Affairs
Thursday, February 8, 2024
Senator Warren: Thank you, Mr. Chairman. It’s good to see you, Secretary Yellen.
So today I want to talk about the one-percenters, not the billionaires, but the billionaire banks. America has more than 4,700 banks, but the ones that have the power to crash our economy and the ones that get government bailouts are not the community banks.
No, the ones that pose a threat are the giant banks—the multi-billion dollar banks, so the Fed has proposed increased capital standards to make these giant banks hold more capital. And it turns out that even among those billion-dollar banks, nearly 90% already hold enough capital. So what we’re really talking about here is just a handful of the biggest banks that would have to hold a little more capital.
Secretary Yellen, I just want to start by making sure I’ve got my facts right. Would the new Basel III rule on capital standards have no impact on community banks and, in fact, only make a handful of giant banks hold more capital?
Janet Yellen, Secretary of the Treasury: Well, its terms apply to banks with more than a hundred billion dollars or significant trading activities, and community banks have far lower assets, and I’m not aware of any–
Senator Warren: Okay.
Secretary Yellen: –who have those.
Senator Warren: So this is not about our community banks.
Secretary Yellen: Not about.
Senator Warren: This, this is about our, our biggest banks. Why is it so important for these giant banks to hold more capital?
Secretary Yellen: Well, capital is a measure of the resources a bank has to absorb losses in the face of a shock. It’s, even in normal times, capital is something a bank has to have in order to lend, and so it’s critical to meeting the borrowing needs of households and businesses throughout the economy.
When a shock hits like we saw in the financial crisis, a bank can fail if it runs through its capital, and if it’s a large bank or one that is highly interconnected to other financial institutions, its failure can have devastating consequences for the financial system as a whole. The failure of one bank can transmit huge problems to other banks that it lends to or borrows from, they too can fail, and we can see an event like the 2008 financial crisis.
And when you have such a financial crisis, it can cause an enormous economic toll. We saw that when we hit near double-digit unemployment when the financial system collapsed. It hits hardworking Americans, it hits businesses that really had nothing to do with any of the activities that cause this. So, it’s important.
Senator Warren: So higher capital standards are about making the bank safer, but it’s about making all of us safer, right, basically?
Secretary Yellen: Yes because it diminishes the odds of a systemic financial crisis.
Senator Warren: Of a systemic failure. And that’s why it’s so important for these big banks, and look at what’s happening today: less than a year after three billionaire banks collapsed, another one, New York Community Bank, is now teetering.
So we’re just trying to make sure that these giant banks don’t go broke and come back to the American taxpayer, like they have done before, to get a bailout. But the big banks—like JPMorgan, Bank of America, Citi, and Wells Fargo—are fighting back hard against these capital standards. They’ve spent millions of dollars lobbying. They’re even running ads during the NFL playoffs claiming that if they have to be a little bit safer, it will somehow raise grocery prices for American families. You know, in other words, they want us to believe that big banks are really worried about Americans’ grocery bills.
Nobody believes that. So the question is, what is this really about? The answer is profits. If giant banks have to hold back just a little more capital, that could bite into their buybacks and their executive compensation. In fact, Morgan Stanley recently said it out loud: the banking lobby is fighting to water down the capital rules so that these giant banks can create quote, “a significant increase in buybacks.”
Secretary Yellen, let me just ask, do you happen to know how much money the four biggest banks returned to their shareholders through stock buybacks and dividends over the last decade?
Secretary Yellen: My guess is it’s a large amount–
Senator Warren: It’s a lot of money.
Secretary Yellen: –but I don’t know. I don’t know the exact figure.
Senator Warren: I actually looked this up. $630 billion. And do you know how much the average CEO pay at these big banks was in just 2022, just in that one year?
Secretary Yellen: I’m not sure, my guess would be around 30, 30 million, but I don’t know.
Senator Warren: It was $28 million, you’re very very close there.
So, higher capital requirements may mean fewer stock buybacks, it may mean somewhat smaller bonuses for the CEOs.
These giant banks say that they will stop making mortgage loans if they have to hold a little more capital, but I got to say here, who can trust these guys? In 2020, Jamie Dimon at JPMorgan made big headlines when he pledged to make 40,000 mortgage loans to Black applicants. 40,000, that’s a lot. More than three years later, how many loans have they actually made to Black applicants? 122. Yeah.
So that’s what this is all about. The biggest banks want to be able to push hundreds of millions of dollars out the door to investors and CEOs while the banks take on more risks and then when things go wrong—and they will go wrong—they want taxpayers to bail them out again. And they claim that if the Fed doesn’t cave, people’s groceries will cost more.
You know, I am sick of bailouts, and I am sick of banks that lie to the American people. We need stronger capital rules to reduce the need for bailouts, and I urge our regulators to finalize these rules as quickly as possible.
Thank you, Mr. Chairman.
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