(CNN) — Joe Biden should not pick Elizabeth Warren to be his Treasury secretary if he wins the White House, former Democratic Congressman Barney Frank told CNN Business.
“That would be a mistake,” Frank said in an interview.
Warren, a darling of the left and a fierce critic of big banks, is the “favorite” to become America’s first woman Treasury secretary in a potential Biden administration, analysts at Cowen Washington Research Group told clients in a report last month.
But Frank, who worked with the Massachusetts Senator on the sweeping Dodd-Frank financial reform law that turns 10 years old this week, cautioned against a Secretary Warren because of how reviled she is on Wall Street.
“The financial institutions are very negative about her, unfairly in the degree they are,” Frank said. “If you have someone who is that much opposed by the people being regulated, it doesn’t work smoothly.”
Frank currently sits on the board of directors at Signature Bank, a $6 billion New York-based commercial bank.
Frank, who in 2011 pushed President Obama to nominate Warren to run the newly created Consumer Financial Protection Bureau, pointed out that Biden and Warren differ on some key economic and financial policies. For instance, Warren is a vocal advocate for breaking up big banks and instituting a wealth tax — positions that go further than what Biden favors.
“If she’s not vice president, I’d rather see her retain the power of legislation in the Senate,” said Frank, who added that he’s “very confident” Biden will defeat Trump.
Analysts have said that Warren would be a nightmare for Wall Street because her nomination would raise the threat of aggressive regulation.
“This prospect would generate huge anxiety in the financial markets, which she regularly blasts as greedy and corrupt,” Greg Valliere, chief US policy strategist at AGF Investments, wrote in a note to clients last month.
Four more years for Powell?
Frank suggested that Biden, if he wins in November, should consider keeping one of President Donald Trump’s most prominent appointments: Jerome Powell, the chairman of the Federal Reserve.
“Powell has been the best Trump appointee — despite the fact Trump yells at him all the time,” Frank said.
Trump repeatedly bashed Powell for keeping interest rates too high. At one point the president even questioned whether Powell is a bigger “enemy” than Chinese President Xi Jinping.
But Powell has quarterbacked a ferocious response from the Fed to the pandemic that has been applauded by Trump and many others. The US central bank slashed interest rates to zero, vowed to buy an unlimited amount of government bonds and even set up a facility to buy junk bonds and other corporate debt. The Fed’s unprecedented rescue unfroze capital markets and set off an epic boom in the stock market.
“Powell has been good, both on monetary policy and the regulatory side,” Frank said. “There is something to be said for supporting confidence by sticking with him.”
Dodd-Frank, 10 years later
If Biden wins, Frank does not anticipate a push to impose a significant amount of financial regulation. Rather, he predicted a “more vigorous use of the powers that are there.”
Frank, who retired from Congress in early 2013, argues the resilience of America’s banks so far during the pandemic proves the importance of Dodd-Frank.
“Confidence in America’s financial system is terrific. It’s partly because it’s so regulated,” Frank said. “There is confidence that banks are well capitalized because they are regularly monitored.”
The law forced banks to stock up on vast amounts of loss-absorbing capital to guard against the next crisis. In recent quarters, banks have had to draw on those rainy day funds to cushion against looming loan defaults caused by mass unemployment and bankruptcies during the pandemic.
Although bank profits are shrinking, analysts and economists are confident, at least so far, that banks have enough capital to get through the storm.
“Banks were very strong going into this crisis. That was because of regulations put in place after the Great Financial Crisis,” said Constance Hunter, chief economist at KPMG.
Banks could have collapsed without legislation, Frank says
Frank, who regularly stays in touch with former Senator Chris Dodd, said that if not for Dodd-Frank, the economic fallout from the pandemic would have been far worse this spring.
“If we had not passed Dodd-Frank, you would have had significant set of collapses of financial institutions making things worse,” Frank said. “People would lose money and the system would shut down.”
That doesn’t mean a financial crisis still can’t happen.
“If the pandemic caused a financial crisis, it won’t be because of anything specific to the structure of financial institutions or regulation,” Frank said. “It will be because the economy as a whole is so depressed that nobody has enough money and failures multiply.”
Most of Dodd-Frank is untouched
Although Dodd-Frank was opposed by Republicans and bankers who feared it was too burdensome, today the debate is mostly around the margins of the law, not gutting it entirely. After years of adapting to Dodd-Frank, bankers have largely accepted it — and some even applaud it.
“I would be less critical today of Dodd-Frank than I might’ve been 10 years ago,” Kelly King, the CEO of Truist, America’s sixth-largest bank, told CNN Business in December.
King even praised the CFPB, the brainchild of Warren that was created by Dodd-Frank, as a “really good agency” at its “core.”
After taking office, Trump vowed to do a “big number” on Dodd-Frank. But after three years, the law is “almost wholly intact,” Frank said.
Some tweaks have been made.
For instance, last month bank stocks soared after regulators rolled back the controversial Volcker Rule by making it easier for banks to invest in venture capital funds and relaxing limitations on derivatives trading.
And a 2018 law eased stress test requirements on banks with less than $250 billion undergo stress tests every year.
Still, Frank estimates that roughly 90% of the Dodd-Frank still stands today, including the most critical aspects such as requiring banks to have lots of capital and regulation of the derivatives market that nearly sank the economy when AIG blew up.
“What happened was Trump found out it was a lot more sensible than he thought,” Frank said. “And there was no great demand on the part of the financial industry to get rid of it.”
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