Inside Financial Services

Elizabeth Warren’s Strange Obsession With Big Banks Is Hurting Us All

Print Friendly, PDF & Email

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:


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!

15 Responses to “Elizabeth Warren’s Strange Obsession With Big Banks Is Hurting Us All”

  1. c smith

    As long as there is even a CHANCE that the banking system could need another bailout from taxpayers, Warren et al can say and do anything they want with regard to regulation. The bankers put themselves in the position of being beholden to the Feds and are now paying the price.

    • Steve S.

      Excellent point. Bailouts come with restrictions. Those trying to prevent another collapse are just crucified by the banking lobby. As a taxpayer, I don’t want to bail out Wall St. and the banks again.

  2. WallStreetCritic

    Nothing wrong with Elizabeth Warren’s actions or attitude. The banks, especially the big ones have had their way long enough. They have done little or nothing for the average person, focusing instead on big business and risky investments. The taxpayer bailed them out once and we don’t want to do it again. More power to Senator Warren.

    • Chicago

      Who employs Ms Warren? The govt. Who decided to bail out the banks? The govt. I think Ms Warren needs to look inward, not out. If the govt spend less time getting swayed by lobbyists and special interest, then none of this would be an issue.

      I for the record am not in favor of banking bail outs.

  3. m.j.a.

    Same type of rhetoric was tossed around in the 30’s. In the US it eventually led to the New Deal, in Germany, Russia and Europe, it led to something it else.

    Fundamental question is, are we as bad off as we were during the Depression to risk that scale of social upheaval? Easy answer is no, but crusaders are by definition unwilling to consider that type of question and that is where the danger lies.

    Have a good weekend!

  4. Marshall St. Clair

    You are absolutely correct, but unfortunately while Warren is the leading mouthpiece and agitator, she can only be successful if others with power and influence let her. As long as there is political hay to made by bashing banks, and none from “defending” them and no critical mass of political leadership or media is effectively communicating the key point you made that “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”, banks and the economy will continue to bear the brunt of this stuff. I’d like to see the ABA more obviously working on that broad agenda. If they just appear to be lobbying for individual rule changes, it plays conveniently into the popular narrative (‘…big banks keep pushing to loosen the rules that keep them from ruining the economy again due to their greed for profits made from exploiting the 99% and I will fight for you…)

  5. Anonymous

    Bank behaviors have been atrocious–assisting tax evaders, violating economic sanctions against terrorist groups, price fixing ForEx and LIBOR to mention a few. I don’t care for Senator Warren’s populist politics but in excoriating the big banks, she’s right on target.

    • Bill Demmin

      I was the founding CEO of a small community bank and retired 5 years ago. Anonymous clearly missed the point of the discussion which was over regulation of small community banks. Some facts – most small community banks in CA did not and do not make residential loans because there regulatory requirement make it too costly to compete. As a small community bank, we were subject to regulatory examination for safety and soundness, compliance, CRA, and IT (information technology). We had a staff of 14 – the average regulatory examination lasted over a month (each year) and averaged 14 examiners. This does not include the separate examinations for the other areas that were covered as separate examinations. Do small banks need to be regulated – you bet they do. Are they over regulated – you bet they are. Do small community banks make valuable contributions to their communities – you bet they do.

  6. Allan Schlick

    Marshall, in what universe are you living? The big banks had exactly what you wanted them to have and you didn’t notice how that worked out? I don’t know how old you are, but will notice, over time, new regulations always follow malfeasance.

  7. PureDakota

    I’m forgetting now why it was that all this burdensome new regulation was placed on community banks. Did they do something that was at the root of the financial crisis? Unless it’s important for customers to get lots of papers they don’t want and will never read, I’m missing the value side of the equation. Maybe someone can explain the value in forcing banks in rural America to give up mortgage lending. Wouldn’t it be better to keep consumer banking regulations as simple and straightforward as possible?

  8. Marshall St. Clair

    Sorry, Alan – regulation often follows perceived malfeasance and opportunity to create political advantage – and often deflection of attention away from inconvenient causes of the problem. Symptoms of the debate (thank you for helping to make this point) is often disparagement of the messengers.

  9. Strongboy

    Regulation is an excuse for politicians to say they are doing something useful. Self satisfaction derived from being able to say “see how smart I am, I passed a regulation to cure the world”.

    If that were true all that one had to due is say “beam me up Scotty”! Oh, I forgot what is now science fiction is tomorrow’s technical reality. Just think of Dick Tracy and his wrist radio and today’s small little hand held computer and communication device we hand pocket carry with us today, that thing called a cell phone.

    Social behavior such as the banking industry’s business practices develop over time to need the general needs of the customer’s expressed desires about the products offered and bought. “Cheating” is an ethical question. Education based on ethical issues and personal responsibility in conduction one’s business and personal affairs would effect the need for others telling us how we must act to be considered a good person.

  10. Allan Schlick

    I was a banker for 40 years and I can tell you each burdensome regulation was brought about by the banks’ wrong doing. This includes redlining, discriminating against women, minorities and wrongful foreclosures. The only reg I can think of that the banks did not entirely bring on themselves is the money laundering regs. Now a good argument can be made for regulatory over kill.

  11. Morgan's Mom

    I’m no banking expert, but there’s something about Elizabeth Warren that makes the hair on the back of my neck stand up. That woman is so off base, so out there, I don’t know if the space shuttle could bring her back. Accountability and common sense regarding banking makes more sense than over-punishment with penalizing rules.

Comments are closed.