Sen. Elizabeth Warren, D-Mass., questions Treasury Secretary Janet Yellen through the Senate Banking, Housing, and Urban Affairs Committee hearing titled The Financial Stability Oversight Council Annual Report back to Congress, in Dirksen Senate Office Constructing in Washington May 10, 2022 in Washington, DC.
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WASHINGTON — Sen. Elizabeth Warren is sounding alarm bells concerning the way forward for regional banks in a recent letter Thursday to Treasury Secretary Janet Yellen and a top advisory group for bank regulators.Â
Within the letter to Yellen, obtained exclusively by CNBC, Warren addresses the secretary in her capability as chair of the Financial Stability Oversight Council, and asks her and the council to research several looming threats to banks.
“I urge you to take strong motion to handle the alarming fallout from high rates of interest and protect the security of our economic system,” Warren writes.
The request follows an August announcement by Moody’s that it was downgrading 10 regional banks, and putting one other 17 banks either under review or changing their outlooks from stable to negative.Â
The message conveyed by the downgrades, Warren writes, “lends recent urgency to FSOC’s role.”
On the core of Warren’s concerns are the Fed’s rate of interest hikes, enacted to assist curb soaring inflation rates that peaked last summer before cooling off over the past 12 months. The Massachusetts senator has been an outspoken critic of the increases, warning Federal Reserve Chairman Jay Powell and others that higher rates of interest will ultimately hurt working Americans, even in the event that they appear to exert downward pressure on inflation.
Within the letter, Warren argues that the rising rates helped trigger three market shift which are now threatening the banking system: a decline in the worth of banks’ bond portfolios, losses in business real estate and losses within the leveraged lending market. She also takes aim at specific banks.
“I’m concerned that financial institutions will not be adequately managing these risks particularly in light of reports that banks are planning huge shareholder payouts,” she writes. “Wells Fargo, for instance, just approved a recent $30 billion share buyback program.These payouts would deplete capital and raises significant concerns that the banks can be even less resilient to those threats.”
Warren requests more information from Yellen about what actions the Financial Stability Oversight Council has taken to “to watch the risks related to the Fed’s rate of interest hikes” and asks whether they’ll release an assessment on the risks to the economic system.
Despite the pointed critique of Wells Fargo, the priority for banks’ balance sheets is notable coming from Warren, who’s traditionally viewed as no friend of the banking industry. Since arriving in Washington greater than a decade ago, Warren has spearheaded the creation of one in all the financial sector’s most aggressive watchdog agencies, the Consumer Financial Protection Bureau.
Yet the letter can be the most recent in a series of public statements from Warren difficult the Biden White House from the political left on a wide range of issues. They include openly difficult Powell’s rate of interest hikes, demanding more information concerning the Biden administration’s drug pricing policies, and questioning bank merger approvals granted earlier this 12 months.
