Bank regulators got a sense Thursday of how their lives will be slightly different now that Elizabeth Warren sits on a Senate committee overseeing their agencies.
At her first Banking, Housing and Urban Affairs Committee hearing, Warren questioned top regulators from the alphabet soup that is the nation’s financial regulatory structure: the FDIC, SEC, OCC, CFPB, CFTC, Fed and Treasury.
The Democratic senator from Massachusetts had a straightforward question for them: When was the last time you took a Wall Street bank to trial? It was a harder question than it seemed.
Well, of course it’s a harder question than it seems, because it’s an irrelevant question.
The issue is whether regulators achieve regulatory goals, not whether there is a show trial. Lost in the hurrahs for Warren was the reasonableness of the regulators’ answers (via HuffPo):
“We do not have to bring people to trial,” Thomas Curry, head of the Office of the Comptroller of the Currency, assured Warren, declaring that his agency had secured a large number of “consent orders,” or settlements.
“I appreciate that you say you don’t have to bring them to trial. My question is, when did you bring them to trial?” she responded.
“We have not had to do it as a practical matter to achieve our supervisory goals,” Curry offered.
Think about what Warren was demanding, that a bank under the supervision of the Comptroller of the Currency be brought to trial even if the bank consented to all the relief demanded by regulators.
To what purpose? To destabilize the banking system by causing doubts as to whether the financial institution at issue would survive a trial?
Warren then moved on to the Securities and Exchange Commission witness (via HuffPo):
Warren turned to Elisse Walter, chair of the Securities and Exchange Commission, who said that the agency weighs how much it can extract from a bank without taking it to court against the cost of going to trial.
“I appreciate that. That’s what everybody does,” said Warren, a former Harvard law professor. “Can you identify the last time when you took the Wall Street banks to trial?”
“I will have to get back to you with specific information,” Walter said as the audience tittered.
But again, what would be the purpose of taking to trial an investment bank or brokerage firm as an entity which already consented to relief the government deemed sufficient to achieve the regulatory purpose?
When it comes to criminal charges, there is a reason the government focuses on individuals rather than entities. The mere bringing of criminal charges against an entity often is enough to put the entity out of business. Are our regulators there to strengthen the system, or obtain a headline which ends up damaging the system?
Elizabeth Warren understands all this. Whatever she is, she’s no dummy.
But she saw an opportunity to score a cheap demagogic point by asking an irrelevant question to witnesses who did not anticipate the question because the question is of importance only to politicians seeking headlines, not to people truly interested in financial reform and enforcement.
The second point made by Warren, that shares in banks trade at less than book value, equally was meaningless. There are many companies in a variety of industries which trade below book value for a variety of reasons, some of which are fundamental and some of which simply reflect investor sentiment.
Warren suggested that there was a lack credibility as to the books of the banking industry and a lack of transparency. The answer by Law Professor and Federal Reserve Board member Daniel Tarullo respectfully put Warren in her place, although few paid attention to it. Tarullo pointed out that the regulatory and business climates led investors to question the return on equity for banks. Demagoguery by people like Warren contributes to this regulatory uncertainty.
(added) Politico quoted a banker who echoed Tarullo’s points:
One top exec emailed: “While Senator Warren had every right to ask pointed questions at today’s Senate Banking Committee hearing, her claim that ‘nobody believes’ that bank books are honest is just plain wrong. As Federal Reserve Governor Tarullo explained in response to her question, the low valuations are more likely due to continued economic uncertainty and concerns on the part of investors regarding the impact on banks’ profitability due to the hundreds of new regulations, higher levels of required capital, and significant activity restrictions.
“It is for these very important reasons that the financial services industry has urged regulators to get implementation right — that is, to carry out the instructions and intentions of Congress in a manner that produces a safe and sound, competitive and innovative industry. That’s what today’s hearing was supposed to be about — not some shameless grandstanding. Perhaps someone ought to remind the Senator that the campaign is over and she should act accordingly if she wants to be taken seriously.”
On both of Warren’s points, the lack of trials and banks trading below book value, Warren was doing nothing more than seeking headlines and cheers from low information supporters on the left. She achieved that result, but did nothing to advance any insights into regulatory challenges.
Elizabeth Warren has a unique talent for marrying victimhood with demagoguery. Which is why she should not be discounted as a 2016 Democratic presidential candidate.
That is why we will continue to build upon ElizabethWarrenWiki.org, and to hold Warren accountable for her own lack of transparency and her unwillingness to apologize for her own historical transgressions.