Warren Urges Fed to Activate Capital Buffer for Big Banks Amid Uncertain Economic Conditions
“Better capitalized banks lend more to businesses and households and are better positioned to buoy the economy in a recession – a reality growing increasingly likely in light of President Trump’s economic mismanagement.”
“Current economic conditions demand stronger safeguards on Wall Street to ensure taxpayers, small businesses, and families are not left holding the bag once again when big banks’ risk-taking blows up.”
Washington, D.C. – U.S. Senator Elizabeth Warren (D-Mass.), Ranking Member of the Senate Banking, Housing, and Urban Affairs Committee, sent a letter to Governor Lisa Cook, Chair of Federal Reserve Board’s Committee on Financial Stability, pressing the Fed to invoke its countercyclical capital buffer requirement – aimed at mitigating financial stability vulnerabilities – amid rising recession risks caused by President Trump’s economic mismanagement.
“After the 2008 financial crisis, Congress recognized that risks to financial stability often develop in times of economic expansion, as memories of the last crash fade and financial institutions have an increased appetite for risk. It is critical for policymakers to lean against this tendency by strengthening financial stability safeguards as markets get frothy, credit bubbles emerge, and economic risks appear on the horizon,” the Ranking Member wrote. “This countercyclical approach ensures that the financial system is positioned to serve as a source of strength for the economy if a downturn occurs.”
Ranking Member Warren highlighted that the Dodd-Frank Act directs the Fed to utilize countercyclical capital requirements: “This tool is overseen by the Committee on Financial Stability, which you Chair. It is time to finally activate it. The Fed evaluates a variety of factors when assessing financial stability and whether to turn on the CCyB, including asset valuations, economy-wide leverage, and asset-liability mismatch. In its recent financial stability report, the Fed identifies a range of concerning indicators in several of these categories.”
“The Fed expects the CCyB will be activated ‘when systemic vulnerabilities are meaningfully above normal.’ Current conditions are exactly what the CCyB is designed to protect against. Given your capacity as Chair of the Committee on Financial Stability and Oversight Governor for the Division of Financial Stability, I am requesting that you recommend a full Board vote to activate the CCyB. Instead of voting to reduce big bank capital and chip away at other safeguards at the worst possible moment, you should use your position as the Governor responsible for financial stability to implore the Board to reverse course,” the Ranking Member wrote.
Ranking Member Warren concluded by calling on the Fed for answers: “To help me better understand your approach to financial stability in this precarious moment, please respond to the following questions by September 5, 2025.”
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