Warren laid out a number of broad policy goals for the banking industry, arguing that while the Dodd-Frank Act "made some real progress," more needs to be done to resurrect a safe financial system.
"So what should we do about 'too big to fail'? End it, once and for all," Warren told a
The thrust of Warren's remarks paralleled many of her earlier speeches, but the timing of this latest bid is notable, coming on the heels of
In addition to calling for a break-up of the megabanks, Warren said policymakers must close a regulatory loophole for auto dealers, punish large firms and their executives more harshly for wrongdoing, reform the tax code and better regulate the shadow banking sector.
Warren has long been an advocate for ending "too big to fail," but she employed arguably her toughest language yet, including bluntly saying the big banks needed to be broken up. She suggested two ways to do so: either capping the size of institutions or reinstating the wall between commercial and investment banks, similar to what the Glass-Steagall Act did in the 1930s.
"If banks want access to government-provided deposit insurance, they should be limited to boring banking," she said. "If banks want to engage in high-risk trading, they can go for it — but they can't get access to insured deposits and put the taxpayer on the hook for some of that risk. It's that simple."
She also pushed to limit the Federal Reserve's emergency lending powers to big banks when they're in trouble.
"The prospect of receiving low-cost loans from the Fed completely undermines market discipline — big banks are free to take big risks, knowing full well that the Fed will be there to bail them out if things go south," she said. "The Fed's proposed rule on emergency lending was so weak that it might as well not exist."
She argued that her proposals could actually simplify the regulatory system, reducing the "loopholes, carveouts, and rollbacks" employed by industry.
"When eleven banks are big enough to threaten to bring down the whole economy, heavy layers of regulations are needed to oversee them," she said. "But when those banks are broken up and forced to bear the consequences of the risks they take on — when the banking portion of their business model is easy to see and far easier to evaluate for both regulators and investors — regulatory oversight can be lighter and clearer as well."
She suggested that small banks would benefit in such a system.
"What's needed are smarter and simpler regulations, the kind of regulations that give smaller institutions a fighting chance to meet their compliance obligations without going bankrupt," she said. "The goal is to make markets more competitive, and that means a simple, structural solution: break up the biggest banks so that no bank is too big to fail."
The progressive leader also took aim at a carve-out for auto dealers under the Dodd-Frank Act, which exempted them from
"The market is now thick with loose underwriting standards, predatory and discriminatory lending practices, and increasing repossessions," Warren said, citing a study by the
Several government agencies also took a hit from Warren for not going after financial firms and executives engaged in illegal activity hard enough. She slammed the
"The DOJ and
Instead, Warren proposed that the
"Currently, corporations are taxed for any executive compensation over
In addition, she argued government agencies should beef up oversight of the "shadow banking" sector outside of the regulatory system.
"Despite the central role of shadow banking in the financial crisis, Dodd-Frank did little to address the problem," Warren added. "We need to tackle this issue, and we need to do it before the next Bear Stearns or
Warren added that her views shouldn't be viewed through a partisan lens.
"For too long, the opponents of financial reform have cast this debate as an argument between the pro-regulation camp and the pro-market camp, generally putting Democrats in the first camp and Republicans in the second," she said. "But that so-called choice gets it wrong. Rules are not the enemy of markets. Rules are a necessary ingredient for healthy markets, for markets that create competition and innovation. And rolling back the rules or firing the cops can be profoundly anti-market."
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