Sen. Warren talks SVB exec testimonies, bipartisan bill, banking regulation, debt ceiling

Senator Elizabeth Warren (D-Ma.) sits down with Yahoo Finance's Jennifer Schonberger to discuss a myriad of topics including banking executive testimonies in front of Congress, a bipartisan bill on banking regulation and President Biden's ongoing negotiations to raise the national debt ceiling.

Video transcript

DIANE KING HALL: SVB and Signature Bank executives testified about the lead up to the failures of each firm before the Senate Banking Committee. Joining us now is Yahoo Finance reporter Jennifer Schonberger who is joined by Senator Elizabeth Warren, who got to grill these former executives on the Hill today about the issues leading up to the failure. Jennifer.

JENNIFER SCHONBERGER: Thanks, Diane. And Senator Warren, thank you so much for joining me. It's wonderful to have you on the program.

ELIZABETH WARREN: Thank you.

JENNIFER SCHONBERGER: So you heard for the first time today from the CEOs of failed Silicon Valley Bank and Signature Bank. Your reaction, Senator? What was your biggest takeaway?

ELIZABETH WARREN: These guys just showed us exactly what is wrong with banking right now at these multibillion-dollar banks. So the last time those very same people were in front of us in the Banking Committee was when they came to lobby to weaken the bank regulations. That was back in 2016. In 2018, they got their wish, and as soon as they got their wish, they loaded up their banks with risk.

Silicon Valley Bank decided, you know, just to take on a whole lot more risk. They get a bunch of flags from their banking regulators saying you're taking on too much risk. And you know what their response was? It was to pay themselves big bonuses and stock options. In fact, the CEO of Silicon Valley Bank's salary went up 35% in the year that they took on a whole lot more risk, and they just-- these CEOs kept paying themselves.

And then when their banks blew up, their plan is to keep all the money, and that's what the final questions were about today. After all, as I put it to Gary Becker, the CEO of Silicon Valley Bank, you made billions-- millions, tens of millions of dollars-- we went through the numbers-- by loading this bank up on risk. When the bank exploded, it cost the FDIC billions of dollars. So how much out of those bonuses that you paid yourself are you planning to give back to the FDIC? And the answer was nothing. Plans to keep it all.

And that's why I am advancing a bill with good, strong bipartisan support in order to claw back money from these bank executives so that if they load up on risk, next time around pay themselves, explode their banks, that they will lose all of that money that they paid themselves for exactly taking on that risk. The idea is let's get those incentives aligned a little better not to blow up your bank.

JENNIFER SCHONBERGER: What's your sense of bipartisan support in the full Senate for that clawback bill? Do you think you could get this legislation passed here in short order?

ELIZABETH WARREN: I do. I have good partners in this. I started-- when I first started, I started on the Democratic side with Senator Catherine Cortez Masto, and we started on the Republican side with Senator Hawley and Senator Braun. So we started two and two as we got it going. Now we're in the Banking Committee. We've got a lot of Democrats committed on this, but we also have a good group of Republicans.

We haven't gotten everybody signed on the dotted line, so I don't want to name names here, but I feel very optimistic that we're going to have a good group of people, and all of us are asking Chairman Brown to let us mark this bill up-- as you know, that's what we do in the committees-- so that we can send it to the floor of the Senate. I think it's going to get good support. I think it's going to make it through.

JENNIFER SCHONBERGER: Well, keep us posted on that, Senator. Silicon Valley Bank's former CEO, Becker, and the board knew about these 31 regulatory infractions when he sold stock options just 11 days before SVB failed. When asked about this in testimony, he did not think that he was in possession of material nonpublic information, even though he had not disclosed that to the public. Your thoughts on this? Do you think Mr. Becker committed insider trading?

ELIZABETH WARREN: Look, it is clear to me that there is enough that was said in this hearing today that there needs to be a full investigation of insider trading for Mr. Becker.

But I just want to underscore here that one of the remarks at today's hearing from the CEO was just to say, well, in my judgment, it was good management running the bank, and you just want to say, your judgment is just laughable here. The idea that you can just sit there in your full, straight, and starched way and say that, yeah, you actually blew a bank up, a bank that had a lot of business, a bank that was getting all kinds of warnings from the regulators that you had taken on too much risk, and then want to claim that you used good judgment in running that bank and then want to turn around and say but you didn't have any knowledge about what was really happening when it comes to terms of insider trading-- look, the bottom line here, it's all about how could they boost short-term profits, then take out money for themselves personally, and then keep all that money when the bank blew up? And that's the part Congress has got to put a stop to.

JENNIFER SCHONBERGER: We saw JPMorgan gobble up First Republic Bank. Just a couple days ago, Treasury Secretary Yellen says we could see more mergers in the midsize-regional-bank space given the pressure that we're continuing to see here on regional banks. She says regulators would be open to that. Your thoughts on that, Senator, and do you worry that the nation's largest banks are only getting larger here and creating more potential systemic risk?

ELIZABETH WARREN: So I like the way you frame this. Let's just back this up to look at what it means overall in our economy. President Biden's signature move for our economy has been to say he wants more competition and less concentration. And that's true when we're talking about meatpacking, and it's true when we're talking about eggs. It's true wherever we're talking in this economy, including when we're talking about banking.

And why with banking? Remember back in 2008-2009, the reason that those gigantic banks had to be bailed out was because of concentration. They were too big to fail. The regulators were willing to say the little ones could fail but not the giants.

So we now have to understand that weak regulation has left a lot of these multibillion-dollar banks on shaky grounds. In order to put them together and create more concentration in the banking industry, that is not a happy solution. That is a bad problem made worse. We already have too much concentration in the banking industry.

And in the specific case of JPMorgan Chase, what happened is that weak regulation let these CEOs load up on risk, pay themselves. Banks explode. And that means that a poorly managed bank got gobbled up by the largest bank in this country, which is now $200 billion bigger than it was before this problem started.

So this reminds me what do we need to do? Well, we need that clawbacks bill just to get our folks aligned better so that the CEOs have less incentive to load up on risk. We also need the Fed right now to be ratcheting down-- using their discretion to ratchet down on bank oversight and regulation. And we need Congress to roll back those changes from 2018 that gave the Fed the ability to weaken regulations.

In other words, we need to get focused on this banking industry. We need to be tough on this banking industry, and we do not need to see making too big to fail banks even bigger as the solution. It's not.

JENNIFER SCHONBERGER: Switching gears, Senator, President Biden is meeting right now with House Speaker Kevin McCarthy on the debt ceiling. Do you think the president is giving away too much by putting things like work requirements on the table or perhaps looking at shorter-term spending caps? Are you worried that he has not heeded the lessons from raising the debt ceiling in 2011?

ELIZABETH WARREN: So let's think of this in three bites. The first bite is that we should not negotiate over the debt ceiling. The United States government pays its debts full stop, and it is wildly irresponsible of the Republicans to threaten not to pay those debts, to threaten to push our economy into a recession, to put millions of people out of work, and to damage our good name all around the world where literally since the beginning the United States' word was as good as its bond. And so that's number one.

But number two is we can negotiate over budgets and spending going forward, but if those Republicans are really serious about reducing the national debt, then let's start by raising more revenues. Let's start by closing 12 loopholes that President Biden identified yesterday. Let's start by saying billionaire corporations and billionaires should at least pay a fair share.

You know, I don't think it's right that Jeff Bezos, one of the richest people in the world, pays less in taxes than an Ohio steel worker or a Boston public school teacher-- not less proportionately. Less in actual dollars in federal income taxes. That's fundamentally wrong.

But you asked the question about what about work requirements? I just want to be clear, we're not really talking about work requirements. Right now, for example, on Medicaid, more than 90% of the people who are receiving help either are already working or they are exempt from working because they are disabled, because they are taking care of an infant, because they have a serious long-term illness and are unable to work.

So what is this really about? Well, we've learned from past experience it's about putting a whole lot more requirements, a lot of red tape, that the red tape itself will get people tangled up so that they don't get the benefits that they are actually legally eligible for, benefits that they need.

And we have data on this. The state of Arkansas decided to put these tough new work requirements in place, and the consequence was not to get anybody additional working, but it did have the consequence of so tangling people up in red tape that many of them got pushed out of the system.

So this is really about Republicans just trying to find a way to keep people from getting the medical care that they need, keep them from getting the food that they need, and just push them out onto the streets. And if that's what they want to do, put it up for a vote and let's see what the American people say about that because that is fundamentally wrong.

JENNIFER SCHONBERGER: Senator Warren, unfortunately we'll have to leave the conversation there but so appreciate your insight. Please keep us posted on your work on the regional-bank front. Hope to speak with you again soon.

ELIZABETH WARREN: Will do. Thank you for having me. Always good to talk with you.