On February 13, the Senate Finance Committee will question outgoing White House chief of staff Jack Lew about his credentials and views as the president’s nominee to be Secretary of the Treasury. In this role, Lew will be responsible for shaping national banking policy.
- Too big to fail: Last weekend, conservative columnist George Will joined a growing bi-partisan list of leaders who believe our largest banks have become too large — too big to fail, too big to manage, too big to jail. The 2008 taxpayer bailout underscored the first; JPMorgan’s $7 billion London Whale loss demonstrated the second; and failure to prosecute HSBC Bank for admitted terrorist and drug money laundering highlighted the third. The 2010 Dodd-Frank Wall Street reform law provides tools to reduce the size of banks. Members of Congress have advanced bills to break up the banks. Do you feel that it would be appropriate to use mandated Dodd-Frank powers to break up a major bank?
- The role of regulation: In a 2010 hearing, you stated that you did not believe deregulation was a “proximate cause” of the financial crisis. Really? President Obama himself has stated numerous times that the nation suffered for lack of banking rules. He promoted and signed the Dodd-Frank Wall Street reform law, which includes numerous new rules to protect Main Street. Would you care to reconsider your remarks?
- Housing: Despite bailing out the banks, America’s homeowners collectively owe $700 billion in mortgage debt beyond the market value of their homes. Despite repeated promises, the administration hasn’t delivered concrete relief. How will you change that?
- Wall Street pay: High pay from high-risk banking underpinned the financial crisis. Do you agree? Congress approved several measures to prohibit pay structures that can lead to inappropriate risk-taking. Regulators have thus far failed to finalize any rule, in violation of the legislatively mandated timeline. As chair of the Financial Stability Oversight Council, what steps will you take to expedite the rule to prevent bankers from implementing pay practices that incentivize risk? What further steps should be considered? Do you agree with Drew Faust, president of your alma mater, Harvard, among others, that high pay has drawn an inappropriate proportion of the nation’s best young minds to Wall Street, instead of Main Street?
- Volcker Rule: The president’s Volcker Rule bars banks from owning hedge funds and making short term bets. Since that’s where a few of the biggest banks can earn huge profits and generate bloating bonuses, Wall Street has continued to lobby Congress to repeal the rule, and the regulatory agencies to delay it. Wall Street is succeeding. The rule remains unwritten. What will you do to make sure the Volcker Rule remains strong and is implemented?
- Bank capital: Banks should rely more on equity investors and less on loans from depositors and debt holders, according to many scholars. These equity investors should “take the hit” when banks make mistakes. Instead of the current standard, whereby only about 3 percent of a bank’s business is supported by equity investors, figures such as former FDIC chair Sheila Bair and former Federal Reserve chairman Paul Volcker call for as much as an 18 percent equity capital floor. Do you support this? Do you think that restricting bank’s dividend payments until higher equity buffers can be obtained would be good policy?
- Financial transaction tax: Most financial market trading serves no social purpose; it’s simply gambling. Computers direct high speed trading with hundreds of transactions a second. To curb this, as well as generate needed revenue, would you support a financial transaction tax?
- Derivatives reform: The Wall Street lobby has focused its efforts to dismantle the 2010 reform act on provisions that curb derivative trading. These are the bets that form the most lucrative and dangerous part of what we’re told is “financial innovation.” Will a Treasury led by you continue to support strong derivative rules?
Bartlett Naylor is Public Citizen’s financial policy reform advocate. You can follow him on Twitter at @BartNaylor.