A top Democrat has slammed financial regulators, accusing them of being “asleep at the switch” as the COVID-19 pandemic threatens the housing market and the broader economy.
In a letter to leaders at the Federal Reserve, the National Credit Union Administration, the FDIC, and the Office of the Comptroller of the Currency, Sen. Sherrod Brown (D-Ohio) said the agencies were not doing enough to prepare for threats to financial stability.
“Your agencies must ensure that our financial system is sage and strong, so that this public health and economic crisis does not turn into a financial crisis,” Brown wrote. “Yet, bank and credit union exposure to deteriorating economic conditions, lax regulation, and the public health risks of managing a financial crisis and resolving failed institutions during a deadly pandemic raise serious financial stability concerns. I am deeply concerned that the system is blinking red and, just as in the lead-up to the 2007-2008 financial crisis, you are asleep at the switch.”
Brown said that millions of Americans were having trouble meeting their housing costs.
“AN estimated 11 million adults report that their household is behind on rent, with higher rates of hardship reported by Black and Latino adults than their white counterparts,” he wrote. “…Homeowners are struggling to make their mortgage payments and face the risk of foreclosure, and up to 40 million Americans are at risk for eviction over the next several months. The commercial real estate market shows signs of distress as small businesses continue to face declines in revenue and are forced to shutter.”
Brown said that without additional relief to individuals and small businesses, these conditions created a vulnerability “that could ripple through the banking system.”
The senator also slammed the Trump administration’s deregulatory agenda, which he said had left the US financial system at risk even before the pandemic.
“This Administration has rolled back important protections put in place in response to the last financial crisis intended to safeguard our financial system and protect consumers from predatory lending, risky investment activities, and exposure to overleveraged companies,” Brown wrote. “The banking agencies have also lowered capital requirements and sanctioned the continued issuance of dividends, allowing banks to prop up their executives and shareholders, instead of lending in their communities.”
Brown accused the regulators of going further than Congress provided for in order “to turn temporary regulatory relief measures meant to help consumers and small businesses during the pandemic into industry giveaways.”
“‘Watchful waiting’ and deregulation are insufficient regulatory responses to the myriad stressors in the financial system,” Brown wrote. “The COVID-19 pandemic has created fragility across sectors and any one could trigger bank failures and financial contagion. Your agencies must show that they are responding to and preparing for threats to financial stability before the real economy suffers even further.”