Fair Game: Elizabeth Warren on Big Banks and Their (Cozy Bedmate) Regulators


The capture of our regulatory and political system by big and powerful corporations is real. And it is a central and disturbing theme in the new book by Senator Elizabeth Warren, Democrat of Massachusetts.

“This Fight Is Our Fight” contains juicy but depressing anecdotes about how our most trusted institutions have let us down. It also shows why, years after the financial crisis, big banks are still large, in charge and, basically, unaccountable for their actions.

“In too many of these organizations, there are rewards for cheating and punishments for calling out the cheaters,” Ms. Warren said in an interview Wednesday. “As long as that’s the case, the biggest financial institutions will continue to put their customers and the economy at risk.”

Ms. Warren’s no-nonsense views are bracing. But they are also informed by a thorough understanding of how dysfunctional Washington now is. This failure has cost Main Street dearly, she said, but has benefited the powerful.

Wells Fargo got a lot of criticism from Ms. Warren, both in her book and in my interview — and on live television during the Senate Banking Committee hearing on the account-opening mess in September. She was among the harshest cross-examiners encountered by John G. Stumpf, who was Wells Fargo’s chief executive at the time. “You should resign,” she told him, “and you should be criminally investigated.” (Mr. Stumpf retired the next month.)

This week, Ms. Warren called for the ouster of the company’s directors and a criminal inquiry into the bank.

“Yes, the board should be removed, but that’s not enough,” she told me. “There still needs to be a criminal investigation. The expertise is in the regulatory agencies, but the power to prosecute lies mostly with the Justice Department, and if they don’t have either the energy or the talent — or the backbone — to go after the big banks, then there will never be any real accountability.”

Banks are not the only targets in Ms. Warren’s book. Others include Wal-Mart, for its treatment of employees; for-profit education companies, for the way they pile debt on unsuspecting students; the Chamber of Commerce, for battling Main Street; and prestigious think tanks, for their undisclosed conflicts of interest.

My favorite moments in the book involve the phenomenon of regulatory capture: the pernicious condition in which institutions that are supposed to police the nation’s financial behemoths actually come to view them as clients or pals.

One telling moment took place in 2005, when Ms. Warren, then a Harvard law professor, was invited to address the staff at the Office of the Comptroller of the Currency, a top regulator charged with monitoring the activities of big banks.

She was thrilled by the invitation, she recalled in the book. After years of tracking various problems consumers experienced with their banks — predatory lending, sky-high interest rates and dubious fees — Ms. Warren felt that, finally, she’d be able to persuade the regulators to crack down.

Her host for the meeting was Julie L. Williams, then the acting comptroller of the currency. In a conference room filled with economists and bank supervisors, Ms. Warren presented her findings: Banks were tricking and cheating their consumers.

After the meeting ended and Ms. Williams was escorting her guest to the elevator, she told Ms. Warren that she had made a “compelling case,” Ms. Warren writes. When she pushed Ms. Williams to have her agency do something about the dubious practices, the regulator balked.

“No, we just can’t do that,” Ms. Williams said, according to the book. “The banks wouldn’t like it.”

Ms. Warren was not invited back.

Ms. Williams left the agency in 2012 and is a managing director at Promontory, a regulatory-compliance consulting firm specializing in the financial services industry. When I asked about her conversation with Ms. Warren, she said she had a different recollection.

“I told her I agreed with her concerns,” Ms. Williams wrote in an email, “but when I said, ‘We just can’t do that,’ I explained that was because the Comptroller’s office did not have jurisdiction to adopt rules to ban the practice. I told her this was the Federal Reserve Board’s purview.”

Interestingly, though, Ms. Warren’s take on regulatory capture at the agency was substantiated in a damning report on its supervision of Wells Fargo, published by a unit of the Office of the Comptroller of the Currency on Wednesday.

The report cited a raft of agency oversight breakdowns regarding Wells Fargo. Among them was its failure to follow up on a slew of consumer and employee complaints beginning in early 2010. There was no evidence, the report said, that agency examiners “required the bank to provide an analysis of the risks and controls, or investigated these issues further to identify the root cause and the appropriate supervisory actions needed.”

Neither did the agency document the bank’s resolution of whistle-blower complaints, the report said, or conduct in-depth reviews and tests of the bank’s controls in this area “at least from 2011 through 2014.” (The agency recently removed its top Wells Fargo examiner, Bradley Linskens, from his job running a staff of 60 overseeing the bank.)

“Regulatory failure has been built into the system,” Ms. Warren said in our interview. “The regulators routinely hear from the banks. They hear from those who have billions of dollars at stake. But they don’t hear from the millions of people across this country who will be deeply affected by the decisions they make.”

This is why the Consumer Financial Protection Bureau plays such a crucial role, she said. The agency allows consumers to sound off about their financial experiences, and their complaints provide a heat map for regulators to identify and pursue wrongdoing.

But this setup has also made the bureau a target for evisceration by bank-centric politicians.

“There was a time when everything that went through Washington got measured by whether it created more opportunities for the middle class,” Ms. Warren said. “Now, the people with money and power have figured out how to invest millions of dollars in Washington and get rules that yield billions of dollars for themselves.”

“Government,” she added, “increasingly works for those at the top.”

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