WARREN: Thank You, Mr. Chairman. Good to see you again, Chair Yellen.
So, the 2008 financial crisis cost millions their jobs, their homes and their savings and in response, Congress passed the bipartisan Dodd Frank Act, which aimed to prevent big banks from blowing up the economy again.
Now, President Trump has called it a quote, “disaster” and has vowed to quote “dismantle it.” He started down that road two weeks ago when he issues an executive order on financial regulation, and he has put two men—Steve Mnuchin and Gary Cohn-- who have spent a combined 42 years at Goldman Sachs in charge of rewriting the rules to help big banks like Goldman.
Chair Yellen, I know you and the fed spend an enormous amount of time looking at actual data about the economy and financial markets, so I want to follow up on Senator Brown's questions and get your take on some of the administration's main reasons for calling Dodd Frank a disaster.
When he unveiled his executive order, President Trump said he hoped to quote, cut a lot out of Dodd Frank, close quote, because quote, friends of mine that have nice businesses can't borrow money.
Now I’m aware of the small business survey you cited earlier, but I want to look at the bigger range of data. What did the data show about business lending since Dodd Frank was enacted in 2010?
YELLEN: Well, CNI lending at this point, it's grown and it exceeds after declining, it exceeds its 2008 peak on an inflation adjusted basis. The same is true for total loans held by commercial banks. Since the end of 2010 total CNI loans outstanding have grown over 75%.
YELLEN: In the most recent period for which we have data, the recent 12 month period CNI loans grew over 7% and small CNI loans—which are usually sort of small business related—grew almost 4%.
So we have seen healthy growth in actually lending in the economy. The survey that I mentioned to Senator Brown, I believe over half of small businesses indicated that they absolutely didn't need to lend and had no desire for credit for a variety of reasons.
WARREN: Didn't need to borrow?
YELLEN: Did not need to borrow at all, including slow growth in the economy.
WARREN: Thank you very much. Very impressive. So the data do not back up the President up here.
Another claim, from President Trump's economic advisor, Gary Cohn, is banks have been forced to hoard capital and quote have been forced to literal build capital and build it instead of lending capital to their clients.
Now, Chair Yellen, when regulators impose a capital requirement on a bank, does that requirement prevent the bank from lending out that capital or in other words, is a capital requirement a reserve requirement? Can banks do whatever they want with that capital, including lending it?
YELLEN: It's not a requirement they take money and stick it in a safe where it can't be used. It's a requirement that they finance the lending they want to do. With a certain amount of capital and not only with debt, so the capital is used to make loans.
WARREN: Good. So, the president's chief economic advisor was wrong about that pretty basic fact.
Let's look at another statement by Mr. Cohn. He said we have the best, most highly capitalized banks in the world and we should use that to our competitive advantage. But on the flip side, we also have the most highly regulated overburdened banks in world. That sounds like a contradiction to me. Either our banks have a competitive advantage because the world knows that we carefully regulate our banks, or our banks have a competitive disadvantage because of those requirements.
So, chair Yellen, which one is it? How our banks down in our comparison to their foreign competitors since we put our new rules in place?
YELLEN: So, I don't have all the numbers at my fingertips, but I believe our banks are more profitable. As I mentioned, they have higher market values relative to their book values and they are capturing market share, for example from European banks. So I guess I see well capitalized banks that are regarded as safe, sound and strong as conferring a competitive advantage on those banks and competing for business.
YELLEN: A competitive advantage, taking away clients from other banks. If fact, our banks have thrived since we passed Dodd Frank, both big banks and community banks are making literally record profits.
Mr. Chairman, I'd like to submit for the record the most recent quarterly report from the FDIC to show that banks of all sizes are more profitable than ever as well as this "Wall Street Journal" for November entitled, U.S. Banks Report Record Profit in the Third Quarter. May I do that?
CHAIRMAN: Without objection.
WARREN: Thank you, Mr. Chair. On any issue, but something as important as rules in place to stop another financial crisis, with we need to start with facts. Real facts. Not those alternative facts that the administration has become known for.
The facts show that Donald Trump is wrong, and his chief economic advisor is wrong about every major reason that they've given to tear up Dodd Frank. Commercial and consumer lending is robust. Bank profits are at record levels, and our banks are blowing way their competitors.
So why go after banking regulations? The President and team of Goldman Sachs bankers that he has put in charge of economy, want to scrap the rules so they can go back to the good old days. When bankers could take huge risks if they got lucky, knowing they could get taxpayer bailouts if their bets didn't pay off. We did this kind of regulation before and it resulted in the worst financial crisis since is Great Depression. We cannot afford to go gown to road again.
Thank you, Chair Yellen. Thank you, Mr. Chair.