Senators known for going after Wall Street got very specific about what they want from prospective Federal Reserve Chair Janet Yellen at a Senate banking hearing on Monday morning.
The hearing was held ahead of Yellen’s confirmation vote, and Senators used it as an opportunity to tell Yellen what they thought should be on the top of a Fed Chair’s agenda.
Senators David Vitter (R-LA), Sherrod Brown (D-OH), and Elizabeth Warren (D-MA) brought up two specific issues the Fed should take up with the financial services industry.
During their time with Yellen, Vitter and Brown went after big banks’ lower borrowing costs — a break they think is really a tax-payer subsidy that enables Too Big To Fail and socializes Wall Street’s risk.
When they were done, Warren told Yellen that it’s time for the Fed to set up more rigorous protocol for policing Wall Street.
First to Vitter and Brown. They’ve been talking about this issue for a while now, and the more work they do on it, the more specific the numbers become.
“[I]t should come as no surprise that the Congressional Oversight Panel for TARP found that the six biggest Wall Street banks received a total of $US1.27 trillion in government support, including accounting for 63 per cent of the Fed’s average daily lending,” Brown said in a hearing last month.
During Monday’s hearing, both Senators pressured Yellen to admit that that was true.
This was the most they got out of her: “Most studies point to some subsidies that point to too big to fail,” said Yellen.
For a potential Fed Chair, that’s pretty candid. Brown and Vitter are going after this issue harder now than ever before. The Government Accountability will release its second report on the matter today, and Vitter sounded confident that it would lend more support to the idea that Wall Street’s business is dependent on the largess of the American tax payer.
Not something you would ever hear Jamie Dimon advertising, of course.
When Warren had her turn with Yellen her message was just as clear — she wants the Fed to be much more aggressive and organised about policing Wall Street. That means setting up a new protocols for how the Street is monitored within the Fed.
“The the truth is… if regulators had done their job we wouldn’t need QE,” said Warren, addressing a concern voiced over and over made by fellow Senators worried about the Fed’s ‘sugar high’ policy.
“We need to make reigning in the banks a top priority for the Board,” she said.
Warren cited an example of when the Board delegated the approval of a major settlement with mortgage lenders to staffers. She said that it shows that board members don’t consider its supervisory role over Wall Street as important as its role as a policymaker.
Warren wants meetings, she wants memos, she wants the Fed to come up with proactive ideas. Letting the supervisory role take a back seat, she argues, may have contributed to the financial crisis. She wants Yellen to come up with a new way to do handle this.
Prepare to keep hearing these talking points as Yellen settles in to her job.