Sen. Warner 'frustrated' with banks ignoring liquidity risks

Big Bank CEOs testified before the Senate Banking Committee on Wednesday, responding to lawmaker inquiries into banking regulation and the Federal Reserve's proposed capital requirements.

Senator Mark Warner (D-VA) joined Yahoo Finance’s Jennifer Schonberger to weigh in on the US financial system.

Addressing the alarm raised by various bank executives regarding the Fed’s capital requirements, Sen. Warmer states plainly: “they’ve got an argument." Warner expresses frustration with banks’ reluctance to use tools such as the “discount window” that could address issues including liquidity risk.

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Video transcript

JENNIFER SCHONBERGER: I sat down with Democratic Senator Mark Warner last night for reaction to bank CEOs' comments. I asked him whether he shares executives' concerns that the Fed's proposed capital requirements could hurt lending and consumers. He told me the banks have an argument this time and he's been told by regulators a lot of revisions are coming to that plan. Take a listen.

MARK WARNER: My friends in the banking industry, whenever there's a new regulation or rule, they always say the sky is falling. The sky didn't fall. This time though, I think they've got an argument.

I think that you've got the circumstance where interest rates are rather recent high. The idea of additional capital requirements and additional buffer beyond what's already in place will mean there will be less capital available for lending. And when you've got even civil rights organizations saying this is not the right time, and I've been told by the regulators that they have a lot of revisions, so I'm going to be anxious to see how this plays out. But I do think they have some concerns that ought to be heard out.

At the same time, though, I get a little frustrated with them at times because there are other tools that could deal with issues like liquidity. If we go back to the very beginnings of the Federal Reserve, when it was first created, there was what's called the discount window where if you've got a bank that's got a liquidity issue, you would go to that discount window. As a matter of fact, two of the major failures this year, SVB and Signature didn't even know how to use that tool.

So one of the things I've been exploring is-- I know banks are reluctant to use it because it comes with a stigma, but you can't complain about other regulations if they don't use existing tools. So could we have a requirement that on some level of random basis, so that there was this-- you had to demonstrate that you knew how to use the window? And can I work with the banking community, so that they can use that window in a way that doesn't create a stigma, doesn't hurt their stock price, but also is frankly a tool on liquidity that was set up in the first place?

JENNIFER SCHONBERGER: If regulators don't make changes up to your liking, that you still feel like it's going to impede the economy, credit availability, the consumer, what is the prospect if that rule does pass close to its current form that you could enact the Congressional Review Act to stop implementation? And would you support that?

MARK WARNER: I know that a whole lot of my Republican friends already are making that threat. I felt like it was, like, kind of, yin and yang at the hearing. You had some people saying, you know, these banks have created every problem in capitalism.

You've got the other group saying the regulators have created all these problems. I'm not frankly in either camp. I'm going to reserve judgment until I see what this final rule looks like, how many revisions are made, and then we can have that conversation.