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Getting Elizabeth Warren's Assessment

Elizabeth Warren appears today before the Joint Economic Committee of Congress to discuss “Measuring the Strength of Financial Institutions,” We should expect a candid assessment of the recent bank stress tests, including how they worked and their impact to date.

Professor Warren is an important figure because she is one of the few unambiguous would-be reformers of the financial system on the public stage. As chair of the Congressional Oversight Panel for the Troubled Asset Relief Program, Warren’s main power is to “name and shame” people, institutions and policies that are not in the public interest – but she has been having great impact in this regard (capped by a recent tour-de-force on the Jon Stewart show). Today should also mark the release of the COP’s next monthly report, focusing on the stress tests.

Warren is also a longtime advocate of a financial product safety commission, and this idea seems to be gaining real traction – including with the administration. We’ll learn more about the road map next week, as the House Financial Services Committee engages with the topic – if Barney Frank, chair of that committee, includes it in his comprehensive potential reform agenda, it could well happen.

As for today, the discussion may well drift over to what a new commission could look like, but I expect most of the session will be spent on the stress tests themselves. There’s plenty to talk about, including the fact that banks have recently been pressed to raise more capital than implied by those tests themselves – which makes you wonder about the value of the test results per se.

Also likely today or tomorrow (to be discussed by the president, no less) is “the list” of banks that will be allowed to pay back their TARP money and thus, under current rules, escape tighter restrictions on their compensation arrangements. How this is likely to disadvantage some big TARP recipients, including Citigroup and Bank of America, is also an important likely topic for the hearing with Elizabeth Warren.

--Simon Johnson

By Terri Rupar  |  June 9, 2009; 8:30 AM ET
Categories:  TARP  
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Comments

I gather the proposed financial product safety commission is primarily for regulating consumer financial products such as mortgages and credit cards. Better regulation makes a lot of sense; clearly people were confused about what they were getting. Even if all the information was available, tracking it down and understanding it was too difficult. I guess this commission would not be involved in the regulation of products such as MBS and CDS, which banks and other sophisticated investors clearly had similar trouble understanding?

Posted by: rfingas | June 9, 2009 3:03 PM | Report abuse

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