February 15, 2013

A number of US Senators probably felt pretty good about themselves when they made it clear that there was no chance that they would support Elizabeth Warren's appointment to head the Consumer Financial Protection Bureau. As a result, President Obama declined to even nominate Warren to head the CFPB, saying that the administration was convinced she "could not overcome strong Republican opposition."

Careful what you wish for. Today, those senators are likely kicking themselves after they saw what happens when someone won't take no for an answer. Since Warren couldn't head the CFPB, she ran for the Senate, won and is on now the Senate Banking Committee. Awkward.

As the senior Senator from Massachusetts (John Kerry resigned to become Secretary of State), Warren gave everyone in the banking world an example of what life will be like now that she is a Senator.

Yesterday, she took the opportunity at her first Senate Banking Committee meeting to tear into the top regulators from the nation's financial service regulators (FDIC, SEC, OCC, CFPB, CFTC, Fed and Treasury). Remember, if she was allowed to be the head of the CFPB, she would have been on the other side of the room yesterday, answering softball questions from Senators who probably don't know the difference between a retail bank and an investment bank.

After a few pleasantries, Warren asks her very direct question: when was the last time regulators took a large bank to trial? Not to a settlement, where the bank admits no wrongdoing, but an actual trial where executives are forced to testify under oath?

The answers were not surprising. No one could recall the last time a large bank had been dragged in front of a court. A few regulators tried to dodge the question and explain to Warren why its better to settle with a bank for a fine than go to trial.

Take a look, it's very entertaining:

Warren wasn't buying it. She pointed out that if the banks know in advance that there is no chance they will be ever brought to trial because the regulator lacks the conviction or the resources to do so, the regulator will have less leverage during a settlement negotiation. "If they can break the law and drag in billions in profits and then turn around and settle, paying out of those profits, there is not much incentive to follow the law," Warren said during her opening comments.

She also notes that without trials and the days of testimony, the public never really ever knows what the banks did, since the settlements are behind closed doors.

When she didn't get an answer to her question, she asked it again. For instance, she asked Tom Curry, Comptroller of the Currency at the OCC, "What I am asking is … when did you last take a large financial institution, a Wall Street bank, to trial?"

Currey contended that the OCC gets "consent orders," or settlements, and doesn't have to bring banks to trial. Elisse Walter, chairman of the SEC, also tried to point out that the SEC has reached settlements, but was not able to tell the committee the last time the SEC brought a bank to an actual trial.

The entire interaction between Warren and the regulatators takes about four minutes and makes for great theater. You can even hear snickers and applause from the audience. If you are looking for evidence that some Senators actually know something about banking, here you go.

Visit CSPAN to view the full video of the Senate Banking Committee hearing (Warren's interrogation starts at 1:34:30).

ABOUT THE AUTHOR
Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology.