The fallout from the collapse of California’s Silicon Valley Bank continues to rock financial and political circles. There is plenty of finger-pointing and blame-laying going on. But Massachusetts Senator Elizabeth Warren reminds us that a lot more attention needs to be paid to the role that Federal Reserve chair Jerome Powell played in the collapse that continues to shake confidence in the banking system.
In a blistering letter to Powell last week, Warren put things in perspective, arguing with regard to the second-largest bank failure in US history:
The banks’ executives—who took too many risks, and failed to protect their customers—are the primary agents responsible for their failure. But the greed and incompetence of these officials was allowed to happen under your watch. It was allowed to happen because of Congress and President Trump’s weakening of the Dodd-Frank Wall Street Reform and Dodd-Frank Act that you supported. It was allowed to happen because of regulatory rollbacks that you initiated. And it was allowed to happen because of supervisory failures by officials that worked for you. This is an astonishing list of failures and you owe the public an explanation for your actions.
Warren’s complaints come as news reports suggest that the Fed knew of problems at SVB and other banks, with The New York Times explaining, “Silicon Valley Bank’s risky practices were on the Federal Reserve’s radar for more than a year—an awareness that proved insufficient to stop the bank’s demise.”
But the senator is pointing to broader and longer-term concerns regarding Powell’s approach.
Noting that the Fed chair supported 2018’s Economic Growth, Regulatory Relief, and Consumer Protection Act, which eliminated key regulatory requirements for banks with assets of up to $250 billion—such as SVB and another collapsed institution, New York’s Signature Bank—Warren bluntly told Powell in her March 15 letter, “As Chair of the Fed, you have led and vigorously supported efforts to weaken the regulations that would have subjected banks like SVB and Signature to stronger liquidity requirements, more robust stress testing, and routine resolution planning obligations. Make no mistake: your decisions aided and abetted this bank failure, and you bear your share of responsibility for it.”
Amplifying her critique on NBC’s Meet the Press on Sunday, Warren said Powell “took a flamethrower to the regulations” and that, as a consequence, “the CEOs of the banks did exactly what we expected. They loaded up on risk that boosted their short-term profits. They gave themselves huge bonuses and salaries and exploded their banks.”
That’s tough language. But Warren, with her decades-long history of scholarship on the financial services industry and the Fed—as well as her current perch on the Senate Banking Committee—knows whereof she speaks. She’s never been a fan of Powell, who was nominated as Fed chair in 2017 by former President Donald Trump and renominated by President Joe Biden in 2021. But the senator, who once referred to Powell as “a dangerous man,” has stepped up her criticism of the chairman since the bank collapses of earlier this month, and on Sunday declared, “He has had two jobs. One is to deal with monetary policy. One is to deal with regulation. He has failed at both.”
Warren is not Powell’s only critic. Senators Sheldon Whitehouse (D-R.I.) and Jeff Merkley (D-Ore.) encouraged Biden to nominate someone other than Powell for chair in 2021, noting that Powell “refuses to recognize climate change as an urgent and systemic economic threat.” In 2020, during a House Financial Services Committee hearing, Representative Katie Porter (D-Calif.) famously ripped Powell for his coziness with economic elites, following reports that the Fed chair had attended a black-tie event at the Washington home of Amazon billionaire Jeff Bezos along with Trump administration insiders and top bankers. “Can you imagine how attending a lavish party at Jeff Bezos’s $23 million home—along with Jared and Ivanka, and the CEO of JPMorgan Chase, Jamie Dimon—might give off the sense to the public that you are not, in fact, immune from external pressures?” asked Porter.
And, last fall, Representative Ro Khanna (D-Calif.) argued that Powell should apologize for the Fed’s bumbling response to inflation. “I blame the Fed and I blame Powell for mismanaging the situation in the first place,” Khanna said. “He should take accountability that he messed up.”
But Warren has been the loudest critic, and since the SVB collapse, she has made it particularly clear that she thinks Powell should step down. “Look,” she said Sunday. “I don’t think he should be chairman of the Federal Reserve.”
Warren is right: Powell should go. Unfortunately, he’s unlikely to step down and equally unlikely to be removed. His term as chair is not due to end until 2026, and his term as a Federal Reserve Board member is set to last until January 31, 2028. But his tenure can and should face more serious scrutiny.
On March 18, Warren asked the inspectors general at the Department of Treasury, the Federal Deposit Insurance Corporation, and the Board of Governors of the Federal Reserve “to immediately open a thorough, independent investigation of the causes of the bank management and regulatory and supervisory problems that resulted in this month’s failure of Silicon Valley Bank (SVB) and Signature Bank (Signature), and deliver preliminary results to Congress and the public within 30 days.”
Warren has also asked that Powell recuse himself from internal probes by the Fed into the Silicon Valley Bank’s collapse, writing in a March 18 letter to the inspectors general and the Fed board, “It is also critical that your investigation be completely independent and free of influence from the bank executives or regulators that were responsible for action that led to these bank failures. I am particularly concerned that you avoid any interference from Fed Chair Jerome Powell, who bears direct responsibility for—and has a long record of failure involving—regulatory and supervisory matters involving these two banks.”