Read the transcript of a “conversation between the Massachusetts senator and Fortune Contributor and former FDIC Chairman Sheila Bair, in which a more business-friendly side of Warren emerges.”
Fortune: Congress just effectively repealed a Dodd-Frank prohibition on big banks using FDIC-insured deposits to fund high-risk derivatives, notwithstanding bipartisan opposition led by you and GOP Senator David Vitter. What’s going to happen to financial reform over the next few years? Is this a precursor of things to come?
Warren: I’m not sure what’s going to happen in the next Congress, but I will tell you that I’m madder than hops about repealing the section of Dodd-Frank that is designed to lower risks in exactly the area where the big banks got into trouble. And now we are putting taxpayers back on the hook. They want to take all the profits, but tag the taxpayer with the losses.
And not everyone in the financial industry thinks this is a good idea.
Right. If I were running a competing investment bank that was doing business without deposit insurance, I’d be even madder. These big banks don’t have to compete on a level playing field. I have talked to a lot of nonbank financial players – investment banks, hedge funds –they have to compete for capital on their own. They have to convince their investors to be willing to accept the risks. They have to provide a rate of return to their investors that compensates for those risks. They don’t like competing with a half dozen large financial institutions who enjoy the benefits of deposit insurance and too-big-to-fail status.
You know, when we were talking about doing this interview you put a bug in my brain – you always do.
I’m honored to put bugs in your brain.
You do. And I started thinking about how non-financial businesses are also disadvantaged by this. The last I heard, most Fortune 500 companies are not big financial firms — they don’t have too-big-to-fail government guarantees. That’s worth real money to the big banks. If they had to purchase that kind of insurance against their failure- they would have to pay a lot. Everyone else in the system has to compete for capital against a sector that has a special deal from the government.
Yes. But no one wants to say that publicly.
That’s true. Some business people will say these things to me, but they won’t say them publicly. This gets to the revolving door problem. When too-big-to-fail institutions can place their employees in government positions, it extends their power and intimidates others who don’t have their connections.
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