Elizabeth Warren Explains How the Banking Bill Will Put Families at Risk

Senator Elizabeth Warren was not one of the senators in that coalition, and she certainly did not hold back her criticism of the choice they’d just made. “Republicans and Democrats came together today to deregulate the big banks and set the stage for another financial crash. Bankers are popping champagne because the Bank Lobbyist Act just passed the Senate,” read her first tweet, which was quickly followed by three equally forceful statements.

Proponents of the bank bill have argued that it will offer relief to thousands of community banks and dozens of regional lenders who are struggling under onerous regulations meant to target bigger banks. Its critics see it very differently, finding its definition of “small and medium sized banks” particularly galling: As the New York Times notes, the new rule would eventually raise the threshold for increased regulatory scrutiny from $50 billion in assets to $250 billion—leaving just a handful of banks in the US subject to the stricter rules established after the 2008 financial crisis. The bill will also give many more banks much more room to engage in riskier financial behavior.

Warren and other progressives have argued at length that this would set the stage for another financial crisis, but their warnings seemed to have fallen on deaf ears. “That change will mean that 25 of the 40 biggest banks in this country will be taken off the watch list and not examined very closely,” she told Broadly. “These are the banks that collectively sucked down about $50 billion in bailout money back in 2008.”

Further, Warren said that even with the 15 biggest banks that would remain on the watch list, the rules on them will be eased up. The Federal Deposit Insurance Corporation (FDIC) has estimated that two of the nation’s biggest banks—JP Morgan and Citi—could reduce the amount of money they must keep on hand as a buffer against collapse by $21 billion and $8 billion, respectively. This reduction in capital reserve inherently makes the banks riskier.

“When those banks are riskier, there’s a greater chance that the economy explodes and taxpayers have to bail them out,” Sen. Warren said. “In fact, that’s exactly what the Congressional Budget Office has said. The Wall Street Journal and Bloomberg have also editorialized against this bill, saying it puts more risk into the American economy.”

In that sense, this bill passed fairly quietly—especially when compared to the media and public responses over debates around health care and tax reform—though its impact would be just as profound. Yanking out economic safeguards that prevent America’s largest financial institutions’ reckless behavior from causing a crash will leave taxpaying working and middle class families vulnerable, once again at risk of having to bear the brunt of such an economic crisis.

Warren knows firsthand how quickly a family can be devastated. “I was 12 years old when my daddy had a heart attack,” she said. “And there was a long period with no money coming in, and the bills mounted up, and we lost our family station wagon. I remember every night when I would go to bed, my mother would close the door and then start to cry because we were going to lose our home.”

In college and beyond, she devoted herself to the study of American families that “go broke,” and how this happens with such alarming frequency. In the years leading up to the 2008 crash, as Warren served as a member of the FDIC Advisory Committee on Economic Inclusion and worked as professor of law at Harvard Law School, she said she began to grow concerned about what was happening in the economy.

“Banks were churning out mortgages that were loaded with tricks and traps,” she said. “They were like little grenades with the pins already pulled, and they rolled them out there to millions of families across this country. Then they all started going off at once.”

During the “Great Recession” that was ushered in by the crash – from roughly December 2007 to June 2009 — more than eight million Americans lost their jobs, nearly four million homes were foreclosed each year, and 2.5 million businesses were shuttered, according to researchers at Northwestern’s Institute for Policy Research.

Congress passed the Dodd-Frank Act in 2010 to establish a set of rules and regulations with the specific goal of preventing such a crisis from happening again. Dodd-Frank authorized the creation of a Consumer Financial Protection Bureau, an agency which Warren had proposed in a 2007 paper. Obama appointed Warren to be the Assistant to the President in the implementation of this government agency to hold banks, lenders, and other financial companies accountable to treat consumers fairly.

In 2015, on the six-year anniversary of Dodd-Frank, Warren appeared with then President Obama in the White House weekly address to talk about the Dodd-Frank. What she said then rings especially true now: “Every year, like clockwork, big banks and their Republican allies in Congress try to roll back these protections and undermine the consumer watchdog, whose only job is to look out for you,” she said. “They may have forgotten about the crisis, but working families sure haven’t.”

She's particularly skeptical of fellow Democrats who argue this bill is about aiding community banks. “Give me a break,” she said in a recent speech on the Senate floor, before the bill passed. “This bill is about goosing the bottom line and executive bonuses at the banks that make up the top one half of one percent of banks in this country by size. The very tippy-top. Your local community bank doesn’t have a quarter of a trillion dollars in assets.”

Though Warren crusaded against this bill, and did not emerge victorious in its defeat, one of her post-vote tweets suggested her fight is far from over. “I’m not giving up. We need real accountability for big banks – and the people who run them. I just introduced a new bill – the Ending Too Big to Jail Act – to help ensure bank executives are hauled out of their offices in handcuffs when they break the law,” she wrote.