Elizabeth Warren as Treasury secretary would be a “mistake,” says Barney Frank.


“That would be a mistake,” said Frank in an interview.

“Financial institutions are very negative about it, unfairly to the degree that they are,” Frank said. “If you have someone who is so opposed to the people who are being regulated, it doesn’t work smoothly.”

Big banks expose a big divide between Main Street and Wall Street
Frank, who in 2011 pressured President Obama to nominate Warren to head the newly created Consumer Financial Protection Bureau, noted that Biden and Warren differ on some key economic and financial policies. For example, Warren is a vocal advocate of breaking big banks and instituting a wealth tax, positions that go beyond what Biden favors.

“If she is not vice president, I would rather see her retain the power of legislation in the Senate,” Frank said, adding that he is “very confident” that Biden will defeat Trump.

Analysts have said that Warren would be a nightmare for Wall Street because his nomination would increase the threat of aggressive regulation.

“This prospect would create great anxiety in the financial markets, which she regularly rates as greedy and corrupt,” wrote Greg Valliere, chief US policy strategist at AGF Investments, in a note to clients last month.

Four more years for Powell?

Frank suggested that Biden, if he wins in November, should consider keeping one of President Donald Trump’s most prominent appointments: Jerome Powell, chairman of the Federal Reserve.

“Powell has been Trump’s best designate, even though Trump yells at him all the time,” said Frank.

Trump repeatedly hit Powell for keeping interest rates too high. At one point, the president even questioned whether Powell is a bigger “enemy” than Chinese President Xi Jinping.
But Powell has backed a fierce Fed response to the pandemic that Trump and many others applauded. The US central bank cut interest rates to zero, promised to buy an unlimited amount of government bonds, and even established a facility to buy junk bonds and other corporate debt. The Fed’s unprecedented bailout unfreezed capital markets and unleashed an epic boom in the stock market.

“Powell has been good, both in monetary policy and in the regulatory aspect,” said Frank. “There is something to be said to support confidence by sticking with it.”

Dodd-Frank, 10 years later

If Biden wins, Frank does not anticipate an impulse to impose a significant amount of financial regulation. Rather, he predicted a “more vigorous use of the powers that are there.”

Frank, who withdrew from Congress in early 2013, argues that the resistance of American banks so far during the pandemic demonstrates the importance of Dodd-Frank.

“Trust in the financial system in the United States is excellent. It is partly because it is highly regulated,” said Frank. “There is confidence that the banks are well capitalized because they are regularly monitored.”

Wells Fargo is a disaster.  Only to blame
The law forced banks to accumulate large amounts of loss-absorbing capital to protect themselves against the next crisis. In recent quarters, banks have had to turn to those rainy-day funds to cushion impending loan defaults caused by mass unemployment and bankruptcies during the pandemic.

Although bank earnings are shrinking, analysts and economists are confident, at least so far, that banks have enough capital to weather the storm.

“The banks were very strong in entering this crisis. That was due to the regulations established after the Great Financial Crisis,” said Constance Hunter, chief economist at KPMG.

Banks could have collapsed without legislation, says Frank

Frank, who regularly keeps in touch with former Senator Chris Dodd, said that if it weren’t for Dodd-Frank, the economic consequences of the pandemic would have been much worse this spring.

“If we hadn’t passed Dodd-Frank, there would have been a significant set of financial institution collapses that made matters worse,” Frank said. “People would lose money and the system would be shut down.”

That does not mean that a financial crisis cannot yet happen.

“If the pandemic caused a financial crisis, it won’t be because of something specific to the structure of financial institutions or regulation,” Frank said. “It will be because the economy in general is so depressed that nobody has enough money and the failures multiply.”

Most of Dodd-Frank is intact

While Republicans and bankers opposed Dodd-Frank because they feared it would be too heavy, the debate today is largely focused on the margins of the law, they do not completely disembowel it. After years of adjusting to Dodd-Frank, bankers have largely embraced him, with some even applauding him.

“Today I would be less critical of Dodd-Frank than I could have been 10 years ago,” Kelly King, CEO of Truist (TFC)The United States’ sixth largest bank, told CNN Business in December.

King even praised the CFPB, the creation of Warren that was created by Dodd-Frank, as a “very good agency” at its “core”.

After taking office, Trump promised to do a “large number” at Dodd-Frank. But after three years, the law is “almost completely intact,” Frank said.

Some adjustments have been made.

For example, last month’s bank stocks skyrocketed after regulators revoked the controversial Volcker Rule by making it easier for banks to invest in venture capital funds and reducing limitations on derivatives trading.
And a 2018 law eased stress testing requirements at banks with less than $ 250 billion undergoing stress testing each year.
Still, Frank estimates that about 90% of the Dodd-Frank is still standing today, including the most critical aspects, such as requiring banks to have a lot of capital and derivatives market regulation that nearly sank the economy when AIG (AIG) exploded.

“What happened was that Trump discovered that he was much more sensible than he thought,” Frank said. “And there was not a great demand from the financial industry to get rid of it.”

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