Is it me, or does Elizabeth Warren seem like one of those people who simply resents that fact that corporations make any money at all? From American Banker:
WARREN: DODD-FRANK RULES AREN’T
HURTING SMALL BANKS VERY MUCH
WASHINGTON–Sen Elizabeth Warren on Thursday called into question the need for regulatory relief for small institutions, noting that they have continued to be profitable despite new rules under the Dodd-Frank Act. . . . .
“We’ve heard a lot today about how smaller banks are being smothered by unnecessary regulation supposedly because of Dodd-Frank rules, like new mortgage rules that went into effect in the first quarter of 2014,” she said during the second Senate Banking Committee hearing this week on regulatory relief for small banks and credit unions.
Warren, who has previously shown support for community banks and discussed the need for tiered regulation, noted that bank earnings were up more than 7% in the third quarter of 2014, the most recent data available, compared with the year before. She added that community banks have actually seen earnings growth of more than 11% over the same period . . . . [Emph. added]
So Sen. Warren wants to keep the screws on the banking industry because its earnings rose in the third quarter. Good lord. Forgive me while I point out the obvious: the year-on-year earnings change for a given quarter isn’t an especially helpful barometer in judging the financial health of a company or industry. Better to look at return on equity and return on assets. And, sure enough, the banking industry’s ROE and ROA have both declined materially since the passage of Dodd-Frank. In particular, pre-passage, banks earned in the low teens on their equity, on average; since then, ROEs have hovered in the high single digits. Similarly, ROAs have fallen to just over 1% from around 1.3%.
But Elizabeth Warren isn’t interested in rigorously tracking the health of the banking industry, and everyone knows it. Of course the added regulatory burden (among other things) mandated by Dodd-Frank has depressed industry profitability. The new rules and regulation cost money to comply with. You’d have to be an idiot or a blinkered ideologue to deny that. Just ask any bank CEO how many more people are now working in his bank’s compliance department.
Elizabeth Warren is no idiot. It’s hard not to get the impression, though, that she believes that the banking business is, at its core, illegitimate in a very basic way, and that her calling in life is to impede any action that would help it. Thus her opposition yesterday to a proposal that would ease the rules on what counts as a qualified mortgage. The American Bankers Association is lobbying hard for the measure, arguing that it would ease the burden on smaller banks in particular. That may be so, Warren said yesterday, but it would help big banks too. So she’s against it.
Sen. Warren’s reflexive animus to banks isn’t just bad for the industry’s financial health. It’s bad for the economy as a whole. Banks are a key source of the credit that funds investment and, by extension, jobs and incomes after all. So the less profitable banks are, the less credit they can create over time. You’d think Sen. Warren (or any politician) would think that’s a bad thing. You’d be wrong. Elizabeth Warren hates big banks, period. And all she sees in rising bank profits is a stick she can use to beat the industry with, which is what she did yesterday. What a disaster.
What do you think? Let me know!