WASHINGTON, D.C. — U.S. Sen. Sherrod Brown (D-OH) – ranking member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs – delivered the following speech on the Senate floor today on foreign bank giveaways in S.2155, The Economic Growth, Regulatory Relief and Consumer Protection Act.
Brown’s remarks, as prepared for delivery, follow.
Back 30, 40, 50 years ago, when you went to the local bank to buy a house, you knew the lender, and the lender knew you. You saw them at the grocery store. Maybe they went to your church or synagogue. Your kids probably went to the same school.
And you knew that your deposits at the bank helped fund your neighbors’ house, or the hardware store down the street.
A lot of banks and credit unions still work this way. But the 2008 crisis also taught us that finance has changed. Now, a mortgage in Zanesville is sliced and diced and sold to an investor in Zurich. Banks in Frankfurt place bets on loans in Findlay.
When the system went bust a decade ago and predatory loans began to fail, Ohio taxpayers picked up the tab, including for foreign banks headquartered an ocean away.
The Federal Reserve opened up a spigot of cheap money to keep the global economy from tanking. Banks in Spain and France and Japan and Canada and Korea all came to the United States for help to weather the financial storm.
An analysis of the Fed’s lending from February 2008 to 2009 showed that the vast majority of loans went to foreign banks. After the crisis, records released to the public showed that foreign banks took more than 70 percent of the Fed’s loans during the crisis, and 65 percent of loans from other emergency programs.
Under one bailout scheme, British Barclays alone borrowed 232 billion dollars from the Fed at sweetheart interest rate – the kind of rates a hardware store in Hillsboro could never get on a loan to keep them afloat back in 2008.
So after the crisis, Congress responded with a law – the Wall Street Reform Act – to ensure that taxpayers would never again have to send bailout money to British and Swiss megabanks. We ordered the Fed to keep a closer eye on the big banks – to use their power to make sure the largest global banks didn’t again crash the economy.
Congress instructed the Fed apply the strictest protections to the biggest banks – those with more than 50 billion dollars in assets.
When the Fed implemented these rules, they applied some standards to banks that have more than 50 billion dollars across the globe.
But for global banks that have more than 50 billion dollars in the U.S., the Fed applied the strongest standards. For foreign banks with not only trillions worldwide, but systemic operations in the United States, the Fed wrote rules that are as strict as those for our domestic megabanks. Standards that former Fed Governor Dan Tarullo has called, “special prudential measures.” Standards that ensure that we only import Swiss chocolate, and not Swiss bank failures.
These “special” measures are important. Just last year, the Office of Financial Research released a report showing that foreign banks in the U.S. are riskier than similarly-sized U.S. regional banks.
This legislation threatens to undo important rules protecting us from risk.
This legislation again puts taxpayers on the hook for bailouts.
Under this bill, the foreign banks that took billions in bailouts would be able to take more risks, under a less watchful eye. Deutsche Bank, Santander, and UBS would all be treated more like they were an Ohio regional bank. They’d be treated more like Huntington, or Fifth Third, or Key.
Don’t take my word for it. Secretary Mnuchin sat in front of the Banking Committee just a few weeks ago and confirmed this bill would treat foreign banks with up to $250 billion in assets the same as U.S. regional banks.
That might have been the first direct answer I’ve received from the Secretary during a hearing. But it makes sense, because the Treasury Department wrote in a report last year that this is precisely what this Administration wants to do. They wrote it right into their banking deregulation blueprint back in June. They’re not trying to hide it.
Paul Volcker, former Chairman of the Fed, is worried that this bill deregulates the U.S. operations of foreign banks. Sarah Bloom Raskin, former Fed Governor and Deputy Treasury Secretary, says that this bill, “removes necessary guardrails that were installed to reduce the chances of foreign megabanks drawing on U.S. bailout funds.”
Former Treasury officials Michael Barr and Antonio Weiss are also worried about this bill rolling back rules that protect the U.S. economy from foreign bank risk. Former CFTC Chairman Gary Gensler thinks we need to amend this bill to make sure the foreign banks don’t get a windfall.
That’s quite a list of watchdogs.
And you know who else is under the impression this bill helps foreign banks? Foreign bank lobbyists.
I offered an amendment during the Committee mark-up to close this loophole, and I’m offering it again on the Senate floor. My amendment would’ve ensured foreign megabanks in the U.S. are watched over just as closely as Wall Street banks. It would’ve ensured that Credit Suisse is treated like Citigroup, not like Key.
Foreign bank lobbyists wrote a letter opposing my amendment, saying it was unfair for me to try to keep their rules in place. They said their banks should be treated like U.S. regional banks, not like the global giants they are.
That amendment was defeated at the mark-up.
Why is this such a problem? Let’s take a look at the rap sheet on some of these foreign megabanks.
Banks like Santander, which failed its stress tests three years in a row, would have its rules rolled back under this bill. Stress tests are exercises to ensure that a bank can survive an economic downturn without a bailout – and Santander failed not once, not twice, but three times.
This is a bank that illegally repossessed cars from eleven hundred American service men and women while they were serving our country.
This is a bank that overcharged racial and ethnic minorities for car loans. This is a bank that violated a Fed order to keep more capital, and instead improperly paid out money to its shareholders.
This bill would help Deutsche Bank, which the IMF called, “the most important net contributor to systemic risks” of all worldwide banks.
This is the only bank that would lend to Donald Trump, even after all his failed business deals. This is a bank that every week is met with a new request for information on shady financial arrangements with people in the White House. This is not who we were sent here to serve.
And this bill would help banks like Barclays and UBS and BNP Paribas. Banks that have rigged interest rates, helped people evade taxes, violated U.S. sanctions against Iran and Sudan, and manipulated energy markets.
These are not the banks down the street lending to homeowners in Sandusky or businesses in Findlay. These are some of the most complex global banks that hold almost 1.4 trillion dollars in assets in the United States and more than 14 trillion dollars in assets abroad.
Listen to Paul Volcker, and Sarah Bloom Raskin, and Gary Gensler, and Michael Barr and Antonio Weiss. Believe Secretary Mnuchin when he tells you what he wants to do.
Believe the foreign bank lobbyists when they say this is what they want.
This bill gives them what they want.
There’s a new provision that provides some window dressing. This is a fig leaf of protection to try and convince the public that this bill doesn’t do what it actually does.
The provision provides some vague, ambiguous language that puts the question to the Fed – you can regulate the foreign banks or not – it’s your choice. The legislation doesn’t require the Fed to do anything, and it doesn’t stop the foreign banks from suing if the Fed doesn’t obey their requests.
We’re expected to trust Randal Quarles not to weaken the rules on the foreign banks. To trust Quarles – even though he himself missed the last crisis and personally profited from Wall Street malfeasance.
To trust Quarles – even though just this week, he spoke at an international bankers conference and promised those bankers regulatory relief.
Finally, this last point is technical, but it’s important.
The bill makes sure that a globally systemic United States bank won’t benefit from any deregulation, even if it has fewer than 250 billion dollars in assets. But the bill doesn’t do the same for foreign banks.
That silence is significant.
Let me repeat.
State Street has fewer than 250 billion dollars in assets, and the bill says, because that bank is systemically significant, you don’t get a free pass. This legislation does not do the same for similarly risky foreign banks here in the United States.
My amendment would close that loophole. It treats systemically risky foreign banks like systemically risky U.S. banks, not like Huntington, or Fifth Third or Key.
If we want to help community banks and credit unions and our regional banks that do the right thing, then let’s help them. Foreign megabanks shouldn’t get another chance at a handout from American taxpayers.