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Senate Banking Committee Oversight hearing on pandemic recovery funds.
JEROME H. POWELL: The Senator from Massachusetts, Senator Warren is recognized.
ELIZABETH WARREN: Thank you, Mr. Chair. Thank you, both, for being here today. Chair Powell, during your time as chair, you've taken plenty of actions to weaken the Fed's regulatory oversight of our largest banks. So today, I want to talk about three instances of that and ask you to think about them in hindsight. First, the stress test. Now these are designed to tell whether or not big banks can survive without a taxpayer bailout.
When the tests were first set up, bank supervisors could restrict stock buybacks and dividend payments to strengthen the bank's balance sheet. In 2019, you took that power away. And we now know from the Fed's own research that when the economy hit choppy waters last year, those banks needed stimulus from the taxpayers. And that without this taxpayer help, they would have faced up to $300 billion in losses. Meaning, that they were in a sharply weakened position to withstand the stress. Chair Powell, do you regret weakening the stress test?
JEROME H. POWELL: I don't think we have weakened the stress test. I'm not sure what you're referring to. When banks fail to stress test, their distributions are limited.
ELIZABETH WARREN: So I laid it out here that you took away the power to restrict stock buybacks and dividend payments that could be used to strengthen the balance sheet. You don't see any changes you made to the stress tests and handing the stress tests out in advance?
JEROME H. POWELL: Capital in the largest banks is at multi-decade highs.
ELIZABETH WARREN: That's not my question. I'm looking at the Fed's own research, which says that without the help that you had to put into the economy last year, they would have faced up to $300 billion in losses. So look I don't want to argue with you about what happened--
JEROME H. POWELL: Which they would have met-- which they would have been able to absorb without difficulty.
ELIZABETH WARREN: Let me ask you the question, and I take it you don't have any regrets about any changes to the stress tests?
JEROME H. POWELL: Not really. I mean, I'm prepared to look at-- anything we did as is fair game to look at again, but I don't think so.
ELIZABETH WARREN: OK, but let me ask about another action. In 2020, the Fed along with the other agencies, removed the Volcker Rule restrictions on whether banks could co-sponsor so-called family funds. And then earlier this year, we watched the collapse of a "family fun" called Archegos, which causes banks-- caused banks to suffer a quick $10 billion in losses. Given the Archegos collapse, do you regret weakening the Volcker Rule?
JEROME H. POWELL: You know, that's actually a family office, the Archegos is. I don't know that there are any Volcker Rule implications for Archegos. I will say, we've looked at the Archegos situation closely. Those losses worked. And I think learned our lessons from that.
ELIZABETH WARREN: Learned her lessons, but do you have any regrets about weakening the Volcker Rule around family funds having watched what Archegos did?
JEROME H. POWELL: I have to understand the Archegos connection. Generally, it was widely agreed that the Volcker Rule as implemented was complex and not workable. And--
ELIZABETH WARREN: So I'll take that as a no. I just want to make sure I can get through all three of these. One last example, in 2019, the Fed weakened liquidity requirements, the rules that ensure that firms have adequate cash to meet their obligations. For banks, between $250 and $700 billion in assets, the liquidity requirement was cut by 15%. So let me just ask, do you regret slashing liquidity requirements designed to protect markets from crashing like they did in 2008?
JEROME H. POWELL: So that was tailoring, which the law that had been passed through this committee required. I don't-- I don't see that there has been any evidence that was a bad idea, but it's one that could certainly be looked at again.
ELIZABETH WARREN: OK, so you'd be willing to at least look at that again?
JEROME H. POWELL: Yes.
ELIZABETH WARREN: OK, this cut by 15%. You know, Chair Powell, the elephant in the room is whether you're going to be renominated for a second term as Fed Chair. Renominating you means gambling that for the next five years, a Republican majority of the Federal Reserve with a Republican chair, who has regularly voted to deregulate Wall Street, won't drive this economy over a financial cliff again. And with so many qualified candidates for this job, I just don't think that's a risk worth taking.
I know that some argue that your deregulatory actions are mostly harmless. I disagree. I think they've put taxpayers at risk for hundreds of billions of dollars. But even at that, so far you've been lucky. But the 2008 crash shows what happens when the luck runs out. The seeds of the 2008 crash were planted years in advance by major regulators like the Federal Reserve that refused to reign in big banks.
I came to Washington after the 2008 crash to make sure that nothing like that would ever happen again. Your record gives me grave concern over and over. You have acted to make our banking system less safe. And that makes you a dangerous man to head up the Fed. And it's why I will oppose your renomination. Thank you, Mr, Chair.