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Warren Plows Forward with Financial-Sector Regulatory Aims

Regulators about to roll out new rules, but some lawmakers want a boot on the neck of Wall Street even more.

by
Rodrigo Sermeño

Bio

July 18, 2013 - 12:00 am
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Sen. Sherrod Brown (D-Ohio) noted that banks could game the capital rules by using internal models to flatter their balance sheets. Regulators have historically allowed banks to weight assets according to their risk. This, in turn, determines their capital needs.

Tarullo said that liquidity and capital requirements under the Basel III regulatory standards make it more difficult for banks to game risk weighting. He also pointed out that the Fed has been conducting stress tests for firms over $50 billion.

“I think those three things together provide a quite solid base, each of which compensates for the potential shortcomings of the other,” Tarullo said.

Tarullo said the Fed is working to modify a bank-based capital model to cover insurance companies under Dodd-Frank.

“We’re not in a position to take account of that different business model in setting requirements,” Tarullo told the banking committee members. “I can assure you that we’re working as much as we can on tailoring risk weighting for unique insurance products. But we are a little bit confined here.”

Insurance-related holding companies were left out of capital rules approved by U.S. financial regulators this week. Tarullo said the regulators excluded them from the rule while they continue exploring the best approach.

Last Thursday, Warren and a small bipartisan group of senators introduced legislation that would break up Wall Street’s megabanks by separating traditional banking activities from riskier financial services.

“For half a century after the Great Depression, Glass-Steagall kept this country safe by separating the risky activities of investment banks from the basic checking and service and savings accounts that consumers rely on every day,” Warren said at the hearing. “Wall Street’s high-risk betting nearly destroyed the economy. But since then, we’ve made real progress with Dodd-Frank’s implementation. But despite this progress, the four largest banks are now 30 percent larger than they were just five years ago and they have continued to engage in dangerous high- risk practices.”

Warren and her colleagues hope the legislation can compel the financial sector to return to “the basics and try to keep the gamblers out of banks.”

The bill, called the 21st Century Glass-Steagall Act, shows the frustration of some lawmakers that banks have only continued to grow since the 2007 financial crisis. The other sponsors are Sens. John McCain (R-Ariz.), Maria Cantwell (D-Wash.), and Angus King (I-Maine).

“Since core provisions of the Glass-Steagall Act were repealed in 1999, shattering the wall dividing commercial banks and investment banks, a culture of dangerous greed and excessive risk-taking has taken root in the banking world,” McCain said in a statement. The Arizona senator voted in 1999 for the Gramm-Leach-Bliley Act, which repealed Glass-Steagall.

The bill would reestablish elements of the 1933 Glass-Steagall Act, which separated traditional banks that offer checking and savings accounts insured by the FDIC from financial companies that engage in investment banking, insurance, and other investment vehicles and was overturned in 1999.

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Rodrigo is a freelance writer living in Washington, D.C.

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All Comments   (14)
All Comments   (14)
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There's a simple reason the government is settling these cases without admission of wrongdoing. The cases are BS. The government's lawyers know perfectly well that model they're working from is essentially risable. It essentially requires the banks to ensure that no one on the other side of any transaction ever makes a losing bet. The firms go along with it because fighting a legal war with the entities that regulate you is just too costly. Frankly, I wouldn't mind seeing the government try pushing for an admission of culpability and seeing them get their rear end handed to them in court.
39 weeks ago
39 weeks ago Link To Comment
Dodd-Frank was so bi-partisan it's named Dodd-Frank.

If you don't get the joke, take a minute and look it up. Then, give thanks to Thaddeus McCotter for that chuckle - it was his line.
39 weeks ago
39 weeks ago Link To Comment
Chris Dodd got the sweetheart personal home loan from Countrywide's now disgraced Angelo Mozilo and Bawney Fwanck spent years defending the solidity of capricious and over extended Fannie and Freddie.

Both, thankfully, have left their respective Congressional gigs, but that "thing" they fashioned (dodd-frank) they leave behind.
39 weeks ago
39 weeks ago Link To Comment
"...and Bawney Fwanck spent years defending the solidity of capricious and over extended Fannie and Freddie."

Why wouldn't he? His lover was their director of New Product Initiatives.
39 weeks ago
39 weeks ago Link To Comment
Banksters deserve boot on the neck, boot in the ass, and ten in the pen.

They want to avoid that reinstate Glass-Steagall. It's only when the taxpayer has to bail the bastids out that we start talking boots. Banksters have been robbing the entire economy blind for ten years, it has been the golden age of rent seeking in the history of banking.

You want Warren to go away, that's how you do it.
39 weeks ago
39 weeks ago Link To Comment
So do the people in Massachusetts hang their heads in shame for selecting the lying 1/32 (not) Cherokee woman to represent them in the United States Senate ?

The ideological acolyte of Barack's "you didn't build that" thesis ?

Oh wait, these are the voters that saddled us with The Swimmer Teddy, Barney Fwanck and John Kerry all those years.

Never mind.

39 weeks ago
39 weeks ago Link To Comment
"At the same hearing, Sen. Elizabeth Warren (D-Mass.) admonished financial regulators for not taking firms to trial and instead seeking settlements with many of the violators."

If that's her position, should we not be seeking criminal sanction against those in CONGRESS who encouraged much of the behavior that led to the financial collapse - people like Dodd, and Frank, and Obama for example? Should not that crew that expanded the Community Reinvestment Act be held similarly liable? It's true they didn't drive the securitization process, but the message to "lend more ... and don't worry, we're guaranteeing everything" was certainly a dangerous one.
39 weeks ago
39 weeks ago Link To Comment
Gee whiz, and all along i thought the Fannie Mae, Freedie Macs arifical pumping up of the real estate market had something to do with it. You mean roughly 4 to 6 trillion $ didn't? Da guvmint has clean hands, every one else doesn't it seems. So the people who have also given us four straight years of $trillion plus deficits & the staggering debt that goes with it, to no good effect, are going to straighten things out. And Elizabeth Warren is a key player ! Where's my bottle of booze when I really need it?
39 weeks ago
39 weeks ago Link To Comment
Let's see. We had a tax cheat that was former head of the very committee governing taxation, and another tax cheat as former Secretary of the Treasury.

Chief Runs with Marxists is as qualified to be regulating Wall Street as Fat Fanny Frank or Delinquent Dodd were qualified to legislate banking regulation.

So she's perfect for the Obama team.

That means the next bill up for Congressional approval is the Your Wampum Obama/Warren Wampum Financial Regulatory Controls...
39 weeks ago
39 weeks ago Link To Comment
No risk? No reward! We are no talking about risk here. It was congress that propelled into the collapse in 2008. Specifically Frank and Dodd. The these central planning morons are involved, e worse it will be for all Americans. The Marxist juggernaut continues with no X-man or superhero to stop it. This will not be good news for first time home buyers.
39 weeks ago
39 weeks ago Link To Comment
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