WASHINGTON — In the face of bank deregulatory efforts by the Trump administration and GOP-controlled Congress, a group of progressive lawmakers and former regulators held firm to their support of crisis-era rules Tuesday.

“The moral of this story is simple: Without basic government regulation, financial markets just don’t work,” said Sen. Elizabeth Warren, D-Mass., at an event hosted by Americans for Financial Reform.

Warren said the Dodd-Frank Act, the 2010 law that dramatically toughened financial regulation in response to the crisis, "was not perfect, but it moved us in a big step in the right direction.”

Sen. Elizabeth Warren
“The moral of this story is simple: without basic government regulation, financial markets just don’t work,” said Sen. Elizabeth Warren, D-Mass. Bloomberg News

The event, which focused on regulatory developments in the 10 years after the crisis, also included remarks by Sen. Sherrod Brown, D-Ohio, the ranking member of the Senate Banking Committee. Both he and Warren opposed a recent Senate bill — signed into law by President Trump — that rolled back certain provisions of Dodd-Frank.

They were joined by, among others, Sheila Bair, a George W. Bush appointee who ran the Federal Deposit Insurance Corp. from 2006 to 2011; Thomas Hoenig, a former head of the Federal Reserve Bank of Kansas City and a former FDIC vice chairman; and Michael Barr, a former Treasury Department official in the Obama administration.

Warren, the architect of the Consumer Financial Protection Bureau, said the bureau — created in Dodd-Frank — is a success story. The agency, however, has been dramatically overhauled by the Trump administration under acting CFPB Director Mick Mulvaney.

“We built this agency, we did our best to move it independent of politics,” Warren said. “And the agency has paid off.”

She highlighted the nearly $12 billion the agency has returned to consumers, its enforcement of laws to protect seniors, veterans and active-duty military members from being cheated, and its handling of nearly a million consumer complaints through a public database.

“Because that database is public, markets start to work,” Warren said.

Bair said before Dodd-Frank, consumer protection was not getting enough attention from federal regulators.

“I think it was hugely important to break it off and have a body that was just about protecting consumers in financial services,” Bair said at the event.

The event came just two months after Trump signed a bipartisan bill to ease some of the regulatory burdens of Dodd-Frank, and as Mulvaney has reopened CFPB rules and appeared to pull back on the agency's enforcement efforts. Republicans have also attempted to subject the CFPB to congressional appropriations, which Mulvaney has encouraged.

But the speakers at the event Tuesday countered that strong regulation promotes a strong economy.

“That’s the thing that’s frustrating to me now is we’re seeing swingback, deregulation and all this rhetoric about, ‘Oh we went too far,'” Bair said. “If Dodd-Frank had a shortcoming, it was that it didn’t go far enough, not that it went too far.”

The new law raised the asset threshold for banks to be subject to the Federal Reserve’s enhanced supervisory regime to $250 billion, while enabling the Fed to determine if certain banks with assets of $100 billion to $250 billion should be subject to the enhanced supervision.

Randal Quarles, the Fed’s vice chairman for supervision, has also said the Fed should be able to show banks the stress testing scenarios beforehand.

Both Bair and Hoenig argued that the current stress-testing regime isn’t enough to determine if banks can survive a crisis.

“There’s a lot of opacity around the stress tests,” Bair said. “Putting too much confidence in your stress tests results I think is really ill-advised."

Hoenig said he doesn’t think "too big to fail" has gone away. Reforms like the Dodd-Frank provision requiring large banks to submit resolution plans, known as living wills, are not a substitute for strong capital, he said.

“We can’t hide that away by saying we now have stress tests and living wills,” Hoenig said. “You need capital. You don’t need 100% capital, I know that. But you need capital that says, 'I can absorb a shock.' "

Despite the uphill battle progressive Democrats face in strengthening post-financial crisis rules in the current political climate, Warren and Brown urged consumers to keep speaking up.

“We need your activism, we need your involvement, we need you to make trouble, we need you to make good, necessary trouble,” said Brown.

Neil Haggerty

Neil Haggerty is the Congress reporter for American Banker. He previously was a financial regulation reporter at MLex Market Insight.