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WSBI member banks make "powerful difference" in communities

WSBI member banks make "powerful difference" in communities


Remarks by

Senator Elizabeth Warren

at the

 World Savings and Retail Banking Institute 

World Congress

September 24, 2015

Thank you, Cam, for that kind introduction.  I think it was President Harry Truman who said that if you want a friend in Washington, you should get a dog.  Well, I don't know what that says about Cam, because I consider him a true friend.  We may not agree on each and every issue, but I know that we're both fighting for the same thing: a banking system that helps support our communities and our working families. 

It's a real pleasure to be here with you today.  Your banks make a powerful difference in communities across the world.  It's not about trading in commodities or speculating on complex securities; it's about helping families buy a home, or a car, or put away some money for school or a new business.  Your banks play a critical role in building a strong middle class, and we must protect that.

But it won't be easy.  We saw it first-hand during the recent financial crisis: the entire system is rigged in favor of the global megabanks.

Just think about this for a second.  The megabanks helped fuel a housing bubble that ended up costing millions of families their homes, their jobs, and their savings.  They turned around and received hundreds of billions of dollars in bailouts from the government.  And now they're bigger than ever and back to making record profits.  It's almost as if the crisis never happened.

Meanwhile, smaller banks got hammered.  When things got bad, government officials proved how tough they were by letting small banks them fail.  And the ones that survived are left to compete with megabanks that are bigger and more powerful than ever.

In America, the response to the crisis was to put in place a number of new rules – rules on capital, on leverage, on acceptable kinds of investments.  I strongly support these rules: they make the global financial system safer and more resilient.  They reduce the chances of another crisis. 

But the market for financial services is still broken.  Too big to fail is alive and well.  The whole system is still fundamentally tilted towards the megabanks.  And the only way to solve that problem is to make some basic structural changes.

First, we need to end Too Big to Fail once and for all. Not just talk about ending it, or pretend that we're ending it – really end it. 

How?  Simple: break up the biggest banks.  We should cap the size of the biggest financial institutions, as Congress considered in the aftermath of the financial crisis.  And we should adopt a 21st century Glass-Steagall Act that rebuilds the wall between commercial banking and investment banking.  If banks want access to government-provided deposit insurance, they should be limited to boring banking.  If banks want to engage in high-risk trading, they can go for it – but they can't get access to insured deposits and put the taxpayer on the hook for some of that risk.  It's that simple.  Adopting these changes would make our financial system safer and more competitive immediately.

Second, we need to ensure that executives at the big banks are held accountable for wrongdoing. Right now, federal agencies sit on their thumbs while the same giant financial institutions break the law time after time, and all the government says is, "please don't do it again."[1] If executives at smaller banks break the law, they go to jail[2] – and the rule should be the same for the CEOs of giant banks as well.  Nobody should be above the law. 

Third, we need to change our tax laws so that they don't encourage big banks to take on more dangerous activities.  Here's three quick examples:

  • First, executive compensation:  After the crisis, governments across the globe determined that executive pay should be aligned with the long-term interests of the stability of the corporation and, ultimately, the economy.  But in the US, our tax code pushes in the opposite direction by taxing compensation over $1 million unless it's in the form of performance-based bonuses.[3]  That carveout has caused bonuses to shoot through the roof – bonuses that too often reward short-term risk-taking.[4]  We can close that loophole and stop pushing companies to reward short-term thinking at the expense of long-term performance. 
  • Second, debt bias: After the crisis, there was near-universal agreement that big banks needed more capital and less leverage – but, again, the tax code pushes in the exact opposite direction.  The tax code has a massive bias in favor of debt financing over equity financing because interest is deductible but dividend payments aren't.[5]  It's time to change these rules so that the amount of interest a firm can deduct annually is based on the relative amount of capital that firm holds.

  • Third, volatility: High-frequency traders introduce more instability into our financial markets through arbitraging gimmicks that add no value to the economy.[6]  We can institute a targeted financial transactions tax that would have no impact on regular mom-and-pop investors – and no real impact on banks like yours – but that would push sophisticated trading firms out of flash trading and into investing in companies for the long haul.[7]

One other point:  The changes I suggest are structural.  They don't require more regulations or smarter regulators.  In fact, with most of them, we could cut regulatory oversight. Think about the interplay between risk and regulation.  When there are dozens of global banks are big enough to threaten to bring down the economy, heavy layers of regulations are needed to oversee them.  But when those banks are broken up and forced to bear the consequences of the risks they take on – when the banking portion of their business model is easy to see and far easier to evaluate for both regulators and investors – regulatory oversight can be lighter and clearer as well. And that means fewer regulations that trickle down and impose unnecessary costs on smaller banks like yours. 

I believe that these structural changes can make a real difference. They can help protect hard-working families from cheats and liars.  They can help rein in the lawless practices that are still too common at the global megabanks.  They can put an end to Too Big to Fail.  But most of all, these changes will make our financial markets stronger, more competitive, and more innovative.  The secret to better markets isn't turning loose the biggest banks to do whatever they want.  The secret is smarter, more structural regulation that forces everyone to play by the same rules and doesn't let anyone put the entire economy at risk.

This is an economic fight, but this is also a political fight.  The biggest financial institutions aren't just big in the marketplace – they are big in Washington.  Here's a recent example: Last December, Citibank lobbyists came up with a way to weaken the financial rules to boost their profits.  The change didn't help small or medium sized banks—just a handful of giant financial institutions that want to do more high-risk trading.  So they persuaded their friends in Washington to attach this amendment to a bill that had to pass or the government would have been shut down. 

And when there was pushback over that change, the CEO of JPMorgan Chase – our country's largest bank – personally got on the phone with Members of Congress to secure their votes.  How many individuals who are looking for a mortgage or a credit card could make that call?  How many of your banks could have their lobbyists write an amendment and threaten to shut down the US government if they didn't get it?  How many of you could get dozens of senators on the phone personally and agree to something that would help just a handful of banks?  How many?  None.  Keep in mind that the big banks aren't trying to make the market more competitive; they just want rules that create more advantages for themselves.  The system is rigged and those who rigged it want to keep it that way.

My favorite Roosevelt – Teddy Roosevelt – was known as the Trust Buster.  He broke up the monopolies, which led to more competition.  But go back and read Roosevelt.  He said we needed to break up those giant companies because they threatened our democracy.  Big corporations, Roosevelt said, should not have the power "to interfere in politics in order to secure privileges to which [they are] not entitled." [8]  The global economy suffers when those who are financially powerful can twist the rules of the game in their favor.  If the big banks keep calling the shots, they will own both our economy and our political process.

We know what changes we need to make financial markets work better for consumers and for banks like yours.  Strengthen the rules to hold the big banks and their executives truly accountable.  Cut the banks down to size.  Change the tax code to promote more long-term thinking and less speculation.  The key steps aren't hard.  It just takes political courage and a strong demand from leaders like you. 

Thank you.



[1] Public Citizen, Justice Deferred: The Use of Deferred and Non-Prosecution Agreements in the Age of "Too Big To Jail (July 8, 2014) at​.

[2] Associated Press, "Ex-Freedom banker sentenced for role in bank's failure" (Apr. 10,2015); Reuters, "U.S. Jury convicts former bank exec of securities fraud" (Mar. 25, 2015) at​

[3] For a summary of I.R.C. 162(m), see

[4] Alex Edmans, Vivian W. Fang, and Katharina Lewellen, "Equity Vesting and Managerial Myopia," Oct 9, 2014. ECGI - Finance Working Paper No. 379/2013. available at​

[5] I.R.C. section 163(a) allows deductions for interest expenses. I.R.C. section 311(a) disallows deductions for dividends.

[6] Congressional Research Service, "High-Frequency Trading," June 19, 2014, at 18, at

[7] Thornton Matheson, "Taxing Financial Transactions: Issues and Evidence," IMF Working Paper No. 11/54 (Washington: International Monetary Fund), at 38.

[8​] Theodore Roosevelt, The New Nationalism (The Outlook Co., 1910), at 167.

Supervision; Regulation; Proportionality; Taxation; Financial Transaction Tax