U.S. Senator Elizabeth Warren: “Nobody Believes That the Banks’ Books are Honest”

Have you seen Senator Elizabeth Warren’s recent grilling of the heads of the Securities and Exchange Commission, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Commission, and others posted on YouTube? If not, set aside about seven minutes to see how these regulators respond to Senator Warren’s request to identify the last time they took a large Wall Street bank to trial.

There weren’t any good answers, and the regulators who tried to respond looked uncomfortable. It is reported that 1.1 million people have viewed the exchange on YouTube. Not bad for a U.S. Senate committee hearing.

During the exchange Senator Warren cautioned that she is afraid that “too big to fail has become too big for trial,” and also asked why many large banks are trading below book value. She says one reason may be that “nobody believes that the banks’ books are honest.” As investors, we are impressed by her observation.

This strikes at the heart of whether banks are too complicated and whether their financial reports are fully transparent. Hopefully Senator Warren’s line of questioning will lead to more financial reporting transparency and, ultimately, more trust in banks.

Here are a few related articles worth reading:

• Time Magazine: “Mrs. Warren Goes to Washington: Does the Market Mistrust Big Banks?”
  Author Christopher Matthews discusses Citigroup’s market capitalization to provide some interesting insight on the hearing.
• Politico: “Elizabeth Warren Strikes Fear into Wall Street”
  Author Ben White gives some of the banking industry’s reaction to the hearing.
• Washington Post: “Time to Break up the Big Banks”
  Opinion writer George F. Will discusses whether banks are “too big to fail or too big to manage.”

Also check out our previous blog post on this topic:

“Bank Financial Reporting: ‘The Cause Is Hidden, but the Result Is Well Known’”

Photo credit: Associated Press