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From New York Times, I'm Michael Bauboro. This

0:26

is The Daily.

0:37

When he retired from Congress, Barney

0:39

Frank's legacy was a piece of legislation

0:41

designed to prevent another financial

0:44

crisis. Now, because

0:46

of what he's done since, many

0:49

are asking if Frank helped cause

0:51

another financial crisis. Today,

0:55

my colleague David Enrich talks

0:57

to Frank about the banking crisis

1:00

and the unexpected role that

1:02

he played in it.

1:10

It's Wednesday, March 22nd.

1:17

David, as you have been

1:19

sorting through the causes and

1:22

the fallout of this banking crisis

1:24

that we are still very much in the middle of, why

1:27

is it that you wanted to talk to former Congressman

1:31

Barney Frank? Well, Barney

1:33

Frank has been in the middle of so much

1:35

that has been going on. So, back in 2008,

1:37

after the global financial crisis,

1:40

he was one of the people most responsible

1:43

overhauling the system of financial regulation

1:46

that was in place. And

1:48

that was a real landmark achievement that he had. And

1:53

then in the years to come, he kind of switched gears

1:55

a little bit. He began to support the plan to roll back

1:57

some of those requirements. And then, right

1:59

around the corner, Around the same time they started doing that, he joined

2:01

the board of a bank that stood

2:04

to benefit from those rules being

2:06

weakened. A few years after that, now we're

2:08

in the present day, that bank was one of

2:10

the first to fail. A lot of people are concerned that

2:12

it's one of the bellwethers that is setting

2:14

off this global banking panic. He's

2:16

gone from being the guy who created the

2:18

rules to the guy who supported weakening them

2:21

to the guy whose bank falls victim

2:24

to this budding financial crisis. Right.

2:26

A kind of hero-to-villain,

2:29

perhaps, journey in a pretty

2:31

short period of time. That's right. So

2:33

I was really hoping to get a chance to ask him whether

2:36

he thinks he made some wrong decisions along the way, and

2:38

whether he thinks the decisions he made in some ways

2:40

contributed to the mess that we're now in.

2:43

Hello?

2:44

Hi. Hi, Congressman. Can you hear us?

2:46

Hello. So I arranged to speak to

2:49

him last Thursday, and we

2:51

originally planned to do it by video chat.

2:54

It turned out he was in the Caribbean. His Wi-Fi

2:56

wasn't great. We had some issues with,

2:58

I think, his cell phone and his iPad

3:01

and his iPhone. Hang on, let me make

3:03

this louder. Is it you calling on a 627 number?

3:06

Yeah, it does call on... Okay, hang on. I'm going

3:08

to make it louder. And ultimately, we

3:10

decided to skip the fancy technology and just

3:12

call him on his cell phone. This is obviously,

3:14

I'm sure it's been a tough week for you. Yeah.

3:17

Oh, the toughest thing is we've been trying to get this connection

3:19

and stuff. And

3:22

just remind us, David, who was

3:24

Frank when he becomes involved

3:28

in the post-financial crisis

3:31

regulatory work that

3:32

defines his career? Well, first of all, in his

3:34

telling, he's not someone who has any particular

3:37

interest or experience in bank regulation. Barney

3:39

Frank was someone he'd been in Congress for, I

3:41

think, 27 years, all of them representing

3:43

Massachusetts. And he was one of the

3:46

most progressive members of the House Democratic

3:48

Caucus. He was also, or at least I thought,

3:50

he was also the first openly gay member

3:52

of Congress, although that's something he corrected me

3:55

on.

3:55

I was not the first openly gay member.

3:57

I was the second. first to volunteer it.

4:00

My colleague Gary Studs had been outed, but

4:02

he was the first who acknowledged it. Three or four

4:04

members had been outed, but they all claimed

4:07

that they really weren't gay. They had just been too

4:09

drunk. My

4:11

view was if you're too drunk to remember what you're doing, you're

4:14

too drunk to do it. And he was

4:16

a very outspoken proponent of gay rights

4:19

at a time when not everyone was doing that. The

4:21

reason he got into kind of the financial space in the first

4:23

place is that he wanted to do more to promote

4:26

fair housing and affordable

4:28

housing for people. and he thought that the House Financial

4:30

Services Committee, that that would be a good perch

4:32

from which to push that. Mm-hmm.

4:36

Then, of course, the banking

4:37

system starts to unravel in 2007 and 2008. Take

4:40

a look at the stock trading. It was fast and furious.

4:43

That is a whopping loss of $3.5 billion

4:45

in market value.

4:47

In 2008, when

4:50

J.P. Morgan has to take over bear service,

4:52

that's when it starts. Lehman Brothers is going

4:55

bankrupt. Merrill Lynch sold in haste.

4:57

They should start to hit the fan with the failures.

5:00

And the committee that he's on becomes instead

5:02

a very powerful and important place

5:05

from which he can start tackling the

5:07

work of trying to stabilize the financial system

5:09

and then fix it so that a crisis like

5:12

that won't happen again. We are not

5:14

the Security Exchange Commission or the control

5:16

of the currency. We are not ourselves regulators.

5:18

We formulate regulatory policy. Understanding

5:21

what happened, why it happened, what didn't happen,

5:24

Those are essential

5:25

elements of formulating policy

5:27

going forward. And

5:33

of course, that crisis really stemmed

5:35

from a downturn in the housing market, which revealed

5:37

that many of the country's biggest banks had

5:40

invested a huge amount of their money in

5:42

the housing market in the form of mortgages and mortgage

5:44

backed securities. And when the downturn started,

5:47

these banks lost so

5:49

much money that the entire financial system

5:52

was suddenly at risk. Right, well,

5:54

and keep in mind though, it wasn't just about the banks

5:56

making bad decisions. of the real revelations

5:58

of this crisis was that Regulator We're completely

6:00

asleep at the wheel. And

6:03

so one of the things that Barney

6:05

Frank starts to look at in the immediate

6:07

aftermath of this crisis is how do

6:10

we empower regulators to act more

6:12

swiftly, more decisively, and to

6:15

not just respond to a crisis once it erupts,

6:18

but to prevent it from erupting in the first place. And

6:21

so Barney Frank teams up with Senator

6:23

Chris Dodd, and the two of them set

6:25

out to to enact this

6:28

absolutely sweeping set of financial reforms

6:30

that's going to do everything from empower regulators

6:33

to require banks to hold

6:36

greater financial resources. It creates a consumer

6:38

protection bureau. But one of the biggest parts

6:41

of it is that for the 30 or 40 biggest

6:43

banks in the country, so that's banks with $50 billion

6:46

or more of assets, there's

6:48

this much more intense system of federal

6:50

regulation and other requirements those

6:53

giant banks face. And so they have to undergo

6:55

stress tests. They have to have much thicker

6:57

capital and liquidity cushions.

7:00

They need to be in a position where

7:02

regulators can look at them very quickly

7:05

and have zero doubts about

7:07

their ability to survive a really intense

7:10

economic or financial storm. And

7:12

David, what was so special about banks bigger

7:14

than 50 billion? Well,

7:16

basically, these were the types of banks that had

7:18

caused the 2008 crisis. And

7:20

so this cutoff was meant to ensure that banks

7:22

like that got a specially intense supervision and

7:25

had especially high levels of financial stability

7:27

so that when the next crisis came around, banks

7:29

like this would not be on rickety financial footer. Soon

7:33

after taking office, I proposed a set of

7:35

reforms to empower consumers and

7:37

investors

7:39

to bring the shadowy deals that caused

7:41

this crisis into the light of day and

7:44

to put a stop to taxpayer bailouts

7:47

once and for all. So do you remember

7:49

the day that President Obama signed

7:52

the bill into law?

7:54

of course. Thanks to

7:57

a lot of people in this room. reforms

8:00

will become the law of the land. For

8:04

the last year, Chairman Barney

8:07

Frank and Chris Dodd have worked day

8:09

and night. The emotional

8:11

response when the president thanked both me and Chris

8:13

and how our staffs were so enthused

8:17

and yeah, it was a

8:19

very nice day, a great day.

8:25

And arguably this is the crowning achievement

8:28

of Congressman Frank's career. I mean, the bill

8:30

literally bears his name. It's called Dodd-Frank.

8:34

Yeah, that's exactly right. And about

8:36

two years later, Congressman Frank, who's 72 at the time,

8:39

decides he's going to retire from Congress.

8:42

When I quit, I want the question to be, why

8:45

are you quitting that? Why did you stay so long?

8:49

And so what was your plan? What were you going to

8:51

do in your retirement? Well,

8:54

one, I got married, And

8:56

I planned to

8:58

write mostly and

9:01

speak. I

9:03

had decided I wouldn't lobby, not

9:06

so much ethically. I just

9:08

didn't feel comfortable going back, frankly, to people

9:10

who had been my colleagues as a supplicant.

9:13

Maybe it was an alarm against. But

9:15

I just didn't

9:16

want to do that.

9:19

And then in 2014, he gets invited to

9:22

return to Capitol Hill.

9:24

And why is he invited back? Well,

9:26

he was invited back by his former colleagues

9:28

in the House Financial Services Committee.

9:30

Thank you very much, Mr. Chairman. I'd

9:32

like to welcome the former chairman

9:35

and longtime veteran of this committee, Mr.

9:37

Barney Frank. Barney,

9:42

I've had your portrait hanging over me for

9:44

just about a year now. And during

9:46

that time, I've concluded that just

9:49

seeing Barney Frank

9:50

without hearing him is no Barney

9:52

Frank at all. And at

9:54

this point, Dodd-Frank has come under intense,

9:57

sustained assault, not just from the bank.

10:00

industry, but also from Republicans

10:02

on Capitol Hill. The Republicans at this point

10:04

control the House, and they're doing everything in

10:06

their power to make a public case

10:09

against Dodd-Frank.

10:10

I'm pleased we all will be able to

10:12

hear you today, and I hope to hear you remind my

10:14

Republican colleagues about

10:17

just how close to the brink we came in 2008, and about

10:19

why Congress and the

10:22

president responded forcefully with

10:24

your namesake legislation, the Dodd-Frank

10:27

Wall Street Reform and Consumer

10:29

Protection Act.

10:31

The Democrats on the committee are trying

10:33

their best to defend the law, but

10:35

are struggling, especially because they're in

10:37

the minority. And so Congressman Frank is invited

10:40

to come back to Capitol Hill to testify in

10:42

defense of the law that he helped write. Chairman

10:44

had said that the financial reform bill is as damaging

10:47

as the health care bill. Well my recollection

10:49

is that this Republican

10:51

Congress votes on a fairly regular basis

10:53

to repeal the health care bill. Well where's your bill to repeal

10:56

the financial reform bill? If you have the courage

10:58

of your convictions, let's bring it on. I

11:00

think the problem

11:01

is that the public is in fact much

11:03

more supportive of it, and particularly

11:05

of the consumer bureau. Most

11:07

of his testimony is spent defending the law. Nobody

11:10

is pointed to any abusive practice that I can

11:12

see. No one is pointed to any unfair

11:14

intrusion into the business models.

11:16

And kind of shooting down many of the

11:18

industry's arguments and the Republican arguments

11:21

about the harm that

11:23

the intense regulation has supposedly

11:25

done to the banking industry and to the

11:27

economy. But partway through his testimony,

11:30

he makes what I regarded as

11:32

a really surprising concession. Should

11:35

a bank's systemic importance

11:38

be based strictly and solely

11:41

on their asset size? Well,

11:44

I don't think 50 billion is... Well, look, any

11:46

number is arbitrary, obviously, in the nature

11:48

of the case. He said that the threshold at

11:51

which the intense federal supervision

11:53

really kicked in, so that's at $50 billion,

11:56

he acknowledged that he thought now that that threshold

11:58

was too low. So there was basically s- snaring

12:00

too many banks that were

12:02

not the very biggest of the big

12:04

in just an unnecessarily complicated

12:08

and onerous system of regulation. And

12:10

he said that this threshold should

12:12

be a lot higher than it currently was. Basically,

12:15

I think what you ought to do is to

12:17

set a fairly high number as

12:19

the automatic cut off.

12:21

You always have to pick a number and it will always be somewhat

12:23

arbitrary. But yeah, I think that we

12:25

should look at that 50 billion again. So

12:29

he's opening the door to the possibility

12:32

of rolling back what seems

12:34

like a pretty key element of

12:37

Dodd-Frank, this law that bears his name.

12:39

That's right. And it's around this time that

12:42

Barney Frank is invited to join the

12:44

board of directors of a regional bank

12:46

based in New York, and it's called Signature

12:48

Bank.

12:49

And David, what should we know about Signature

12:52

Bank at this moment, that

12:54

they ask Frank to join

12:56

their board? Well,

12:57

like a lot of other large regional

12:59

banks in the country, it was growing very quickly.

13:02

And it was rapidly approaching having $50 billion

13:05

in assets, which meant that as the rules

13:07

were currently written, it

13:09

was either going to need to really slam

13:11

on the brakes and stop growing,

13:13

or it was about to face a whole new

13:15

intense level of federal oversight

13:17

and all sorts of new financial requirements that

13:20

it looked upon very unfavorably. And

13:22

so at the time that this bank invited Congressman

13:24

Frank to join its board of directors, Signature

13:27

had a tremendous amount at stake in

13:29

the debate over whether or not to

13:31

raise this $50 billion threshold.

13:34

So you were approached by Signature Bank.

13:37

What was their pitch? They thought I was

13:39

smart, knew a lot about banking,

13:41

and had the right values.

13:43

They also stressed to me

13:45

that they were the leading

13:47

user of the low-income housing tax

13:49

credit. They knew that housing had been my

13:52

single biggest substantive policy concern.

13:55

And in 2015, Frank joins the board

13:57

of Signature Bank.

13:59

This, of course, is a is both extremely

14:01

common and extremely criticized.

14:04

This phenomenon of former

14:06

members of Congress or former regulators

14:08

who have spent their careers

14:10

championing or fighting an issue, later

14:13

on getting hired by companies who want to

14:15

use those lawmakers' expertise

14:18

to navigate that very same issue.

14:21

It's known as the great revolving

14:23

door in Washington between government and

14:26

business. What does Barney Frank say

14:28

about this decision to

14:31

join the revolving door system by

14:33

being on Signatures Board? Well,

14:35

first of all, he's very candid about why he

14:37

wanted to be on the board. I wanted to earn money.

14:40

I had no pension.

14:41

I had voluntarily decided not to get into the

14:44

pension plan in 1981.

14:46

I didn't want to lobby. So

14:49

I was looking to earn money. I had been renting money from

14:51

speeches and I had a good advance,

14:53

a half million dollar advance to buy my memoir.

14:56

I was planning to live for many more years and

14:59

I was looking for an ongoing source of income.

15:01

Over the seven plus years they served on Signature's board,

15:04

he earned over $2 million. And

15:06

this is someone who, as he puts it, has

15:08

devoted his whole life to public service. He's

15:11

left an enormous amount of money on the table compared

15:13

to what he could have made if he was in the private sector. And

15:15

he pointed out to me that, look, he graduated from

15:17

Harvard Law School. For

15:18

about $325,000 a year, which I must say for, you know,

15:21

Charmed, Little Aragon, but

15:25

For an honors graduate of Harvard Law School, $25,000

15:28

a year is not an

15:30

excessive salary.

15:32

You look at most graduates of Harvard Law School, they

15:34

go into big corporate law firms and they end up

15:36

making millions and millions of dollars. Right.

15:39

So, for him, this is just what he's kind of

15:41

got coming and what he deserves. And the second

15:43

thing, the broad point he makes, is that he

15:45

doesn't see any particular problem with

15:48

the revolving door, at least not as it applies to

15:50

him. And so he doesn't think that there's

15:52

any real issue with someone who

15:55

had a very important hand

15:57

in shaping financial regulation and

15:59

who is

16:00

recently switched stances and is calling

16:02

for at least a slight weakening of those regulations.

16:04

He doesn't think there's any conflict of interest or anything wrong

16:07

with him going essentially to work for

16:09

that company. I don't understand the argument

16:12

that anything that I advocated as a

16:14

member of Congress, I shouldn't join in

16:16

trying to promote afterwards. And by the

16:18

way, I was not on the payroll line because

16:21

I was not an employee. I was under

16:23

no obligation to follow a party

16:25

line. In fact, I was literally an independent

16:28

director. So the argument that I was somehow

16:31

for hire

16:32

and that my opinion would be influenced,

16:34

no.

16:35

So David, what happens next? What happens next

16:38

is that Donald Trump gets elected president.

16:40

And on the campaign trail and once in the White House,

16:43

Trump has made a mission out of

16:45

destroying Dodd-Frank. He hates it. And

16:48

with Republicans in control of both Congress and

16:50

the White House, the odds of Dodd-Frank

16:53

not just being tweaked or relaxed, but

16:55

being destroyed entirely go

16:57

from being kind of a Republican dream into

17:00

something that is a real possibility.

17:02

And while he's no longer Congressman Frank, now

17:04

he's just Barney Frank,

17:05

he endorses a compromise. And

17:08

the heart of it is to increase the $50 billion

17:10

threshold after which a bank is subjected

17:12

to extra intense oversight for that to

17:14

go from $50 billion to $250 billion.

17:17

So what that means is that the number of banks that are

17:19

subjected to this extra scrutiny, it goes

17:21

from a few dozen to just one dozen. It

17:24

dramatically reduces the number of banks that

17:26

are coming under this intense microscope. Even

17:29

Barney Frank has had some misgivings over

17:31

this law. The fact that

17:34

Barney Frank was such a well-respected member,

17:36

especially on the left, and it played such a

17:38

pivotal role in writing this law to the first place,

17:41

meant that his endorsement of increasing this

17:43

threshold carried an enormous amount

17:45

of weight all over Capitol Hill.

17:47

Even former chairman

17:49

of the financial services committee, Chairman

17:52

Barney Frank, when he He wrote about the

17:54

threshold. He wrote that quote. It is

17:56

quote arbitrary. We're going to say this all day.

17:59

Barney Frank. He

18:00

even thinks the threshold is too low.

18:02

It can be 50 billion. Republicans started citing

18:04

this. And on the $50 billion threshold,

18:06

he said, I think it should be changed. Democrats started

18:09

citing it. Congressman

18:09

Barney Frank said about 95% of

18:12

Dodd-Frank, as

18:15

it is written, will remain intact

18:17

after this bill passes.

18:20

Again, this is former Chairman

18:22

Frank of his own signature law said

18:24

the $50 billion threshold was arbitrary

18:27

and a mistake, and he's right. And

18:29

in 2018, the legislation I'm signing

18:31

today rolls back to crippling Dodd-Frank

18:34

regulations. President Trump signs it into

18:36

law.

18:40

And you see almost immediately the

18:43

banks start to take advantage of this. Silicon

18:46

Valley Bank, for example, goes from being right

18:48

under this $50 billion threshold in

18:50

more than quadruples in size in the space of

18:52

just a couple years. Signature,

18:54

where Barney Frank is on the board, goes from

18:57

right under the threshold in more than doubles

18:59

in the space of a few years. Wow.

19:02

So with Barney Frank's help, two

19:04

of the banks that will eventually

19:06

help trigger this

19:08

banking crisis that we're still living

19:10

through are allowed to become much,

19:13

much bigger with a lot

19:15

less regulatory

19:17

oversight. Correct. We'll

19:19

be right back.

19:44

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Hey everyone, it's Estet Herndon, political

20:09

reporter for The New York Times. I think

20:11

that journalism that is accurate and

20:14

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20:16

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21:03

So David, we all know what happened next. There

21:05

is a run on Silicon Valley Bank based

21:08

on fears that its finances are rickety. Customers

21:10

pull tens of billions of dollars

21:13

out of that bank. And then we

21:14

start to see a run on signature bank. So

21:17

how does Barney Frank describe what

21:19

was happening inside of Signature Bank

21:22

over the past two weeks or so

21:25

from his vantage point as a member of

21:27

its board. Well, in his telling,

21:29

the problems really did not start until

21:31

the Friday afternoon when regulators

21:33

seized Silicon Valley Bank.

21:36

And what happened inside Signature

21:38

that day?

21:40

Friday afternoon, we started moving

21:42

deposits.

21:43

Signature faced essentially a bank

21:46

run of its own. The bank officers

21:48

are then working on trying to persuade people

21:50

not to leave. That becomes clear. At

21:52

first, that's hard to do. Customers

21:54

started yanking their deposits as fast as they could.

21:58

the leadership was concerned.

22:00

They needed to, A,

22:02

try to stem the deposits,

22:04

and B, try to increase

22:07

some liquidity to make sure we could

22:09

fund those deposits.

22:11

So how bad was it on Friday? And

22:13

do you have a sense of how many- Well, David, what's the

22:15

problem? What do you mean, how bad was it? Well- Was

22:18

it one to 10? I told- And as I'm pushing

22:20

him on the details of what happened, he

22:22

got pretty testy at times. And it felt to

22:24

me like he was really trying to distance himself from

22:27

this whole mess. Why am I- That's

22:29

the bank. Right. What did they lose in terms of

22:31

deposits? From the one that was like it, what?

22:33

How much deposits did they lose?

22:36

I remember the number I got for it was $12 to $14

22:38

billion.

22:39

Something like $12 to $14 billion

22:42

of deposits fled the bank that afternoon,

22:45

he says, and that put the bank in

22:47

a very precarious financial position

22:50

heading into the weekend.

22:52

They began on Saturday of a late Friday

22:54

and Saturday working on ways to

22:58

get more liquidity. But there was no

23:00

sense of impending doom. There

23:02

was some competence Sunday morning that we

23:04

were stabilizing the deposits.

23:07

And it came as a big shock to everybody

23:09

when the

23:10

FDIC said, we're coming over Sunday

23:13

afternoon, that was

23:15

not good news.

23:16

That afternoon, he gets a phone call

23:18

from the bank CEO saying that regulators

23:21

have decided to seize the bank and shut it down.

23:24

I

23:24

mean, that must have been an extremely upsetting moment

23:26

for both of you. Yes. Can

23:30

you tell me a little bit more about how you were feeling, how you reacted?

23:34

Well, I said, oh, that sucks.

23:37

Somehow knowing you, Congressman, I

23:39

imagine you were a little more colorful. David,

23:42

I hope your

23:44

chances that our publishers don't depend on

23:46

your

23:47

showing how we were upset when we were told our

23:49

bank was closed. Yeah,

23:51

I hope so too. That's

23:53

not a scoop. Yeah, I was disappointed.

23:57

He claims that this is a terrible mistake. that

23:59

this is overzealous.

24:00

regulators coming in to try to make

24:02

an example out of signature publicly

24:04

for having dabbled in cryptocurrencies.

24:06

And that on the merits, the

24:09

bank was on stable footing and

24:11

should not have been shut down.

24:13

And remind us, what was the government's

24:16

case

24:17

for taking over Signature

24:20

Bank? Well, the government has not very

24:22

clearly articulated the exact rationale,

24:24

but what they have said with both Signature and

24:27

Silicon Valley Bank is that part of what

24:29

the government was trying to do was protect the

24:31

stability of the broader financial system. And

24:34

what I, and I think most people have taken that

24:36

to mean, is that both of these banks

24:38

had grown so big so quickly

24:41

that their uncontrolled collapses really

24:44

posed a pretty serious threat to the

24:46

stability of the entire American banking

24:47

system. Right. And I think that brings

24:49

us to the heart of why it is you

24:52

wanted to talk to Frank in the first place.

24:54

So what does he say about

24:57

the unique role he

24:59

played

25:01

in rolling back the original

25:03

Dodd-Frank financial limits, which

25:05

encouraged Signature to

25:07

grow so fast with less regulatory

25:10

oversight than it would have

25:12

had under the law's original rules? Does

25:15

he think that any of the

25:17

rules that were in place

25:19

from the beginning

25:21

might have stopped a bank like

25:23

Signature or Silicon Valley

25:25

from ending up where it did under

25:28

government control, failing as a bank?

25:30

The short answer is no. He does

25:32

not think it would have made a whole lot of difference

25:35

at all.

25:36

There's nothing... The stress tests

25:38

would not have predicted the problem

25:41

of Silicon

25:42

Valley. I don't

25:44

know how to do it. No, that would give me a case. And to review,

25:47

the rules that these biggest banks are subjected

25:50

to, they have to conduct these annual stress

25:52

tests to make sure that they can withstand a

25:54

severe financial storm. They have

25:56

to hold more liquidity, so they're better positioned

25:59

in the event of a bank.

26:00

run.

26:00

Paperwork. You have a significant paperwork

26:03

increase.

26:04

Well and a significant,

26:07

the paperwork is not paperwork for paperwork's sake,

26:09

right? It's paperwork because 50 billion

26:12

did not trigger any higher

26:15

liquidity requirement of other

26:17

rules. And what Barney Frank said to me, which I found kind

26:20

of surprising and not very

26:22

precise, is that the additional requirements

26:24

that were rolled back, they basically amounted to a a lot

26:26

of extra paperwork.

26:28

He said they didn't really affect the underlying financial

26:30

health of these banks and that they wouldn't have prevented

26:32

this current crisis. I mean, can

26:34

I just ask you, David, do you think he's right?

26:38

Based on my reporting, I don't think that he is.

26:40

The stress tests, for example, the big

26:43

banks we're supposed to be subjected to are

26:45

meant to detect situations kind of like the

26:47

one we're in now and to basically make sure that

26:50

the biggest banks are able to withstand really

26:52

intense financial crises. The

26:54

extra liquidity requirements that the biggest banks

26:57

face are supposed to help a bank

26:59

avoid a bank run, which is exactly what

27:01

just killed Signature and Silicon Valley

27:03

Bank. So I think actually that Barney

27:06

Frank is being a little bit dismissive about

27:08

the importance of these rules that he

27:10

had helped right and the potential that they

27:12

could have really made a big difference. But

27:14

here's the thing, even if we

27:17

grant that these extra regulations

27:19

wouldn't have made a lick of difference in this current

27:21

situation, nobody disputes the

27:23

fact that in 2018, when the

27:26

cap got lifted from $50 billion to $250 billion, that set off

27:28

an arms race among big regional

27:33

banks like Signature and Silicon Valley,

27:35

where they doubled or quadrupled in size in

27:37

the space of a few short years. And

27:40

that is how you've got these banks

27:42

that are potentially posing a risk

27:44

to the stability of the overall financial system.

27:47

And what does Frank say about that,

27:49

this seemingly indisputable reality

27:52

that the change he endorsed to

27:54

his own law

27:56

allowed for even encouraged

27:58

this rapid growth. He

28:01

acknowledges it.

28:02

The 50 billion acted as a deterrent

28:04

to some banks for organic growth. No

28:07

question. And I don't think that was a good idea. I

28:09

don't think it's bad for a bank to be at 80 rather

28:12

than 50. I think banks are basically good

28:14

things. They do good things for the economy.

28:16

They're essential. And if a bank is prospering

28:19

by

28:20

playing a good role, I think it's a

28:22

good thing that they get bigger. But Congressman,

28:24

The thing that surprised me coming from Barney Frank, who

28:27

had spent years blasting

28:29

the big banks was that he thought it was actually

28:32

totally fine and in fact positive.

28:35

And I'm saying that I don't see a harm in

28:37

a bank having any billion. You seem to have an anti-bank

28:39

bias. Big banks, they're bad things.

28:42

I don't think it's... That's what you're saying. I think that

28:44

I guess

28:45

that's... Yeah, that's what you're saying. Kind of my starting

28:47

point on this is that these two big

28:49

banks failed and that that's caused

28:52

a lot of stress in the financial system and is scaring

28:54

a lot of people about what might happen. And

28:56

so... No, I take it back. point I

28:58

was just finding to get. He did not engage,

29:01

really, when I pushed him on the fact that

29:03

had these banks not grown as large as they did,

29:06

as quickly as they did,

29:07

they wouldn't pose the same risk to financial

29:09

stability that regulators cited when

29:12

they had to shut down these two banks. Yeah,

29:14

as I said, though, the point I'm trying to get across,

29:16

maybe not very effectively, is that

29:19

the reason that SBB and

29:22

signatures collapses have

29:25

been problematic and scary for the financial

29:27

system, I think, is because they were big, because

29:30

they had grown so quickly.

29:33

Oh, no question.

29:34

But that doesn't mean no banks should get bigger or

29:36

that it was bad. And by the way, my

29:38

prediction is that in two weeks, this will have been shown

29:40

to be not a systemic issue, that

29:42

it will have been resolved by what the federal

29:45

regulators did. Well,

29:46

Mo, you think I'm too optimistic.

29:49

Call me back in two weeks, seriously. Why don't you write?

29:51

Let's write about this two weeks from now. where

29:54

we ended up is a disagreement about

29:56

the severity of the current crisis we're in.

29:58

and his prediction was that

30:00

this is something, it's kind of a blip,

30:02

this is not a real financial crisis. And

30:05

two weeks later,

30:06

no one will even be talking or thinking about this.

30:09

Yeah, there were two, three

30:11

bank failures, but they didn't trigger

30:14

anything like the threat

30:16

of 2089, nor did they require

30:19

remedies anywhere near as extensive.

30:22

Yeah, although I think a skeptic or

30:24

a pessimist might say that this

30:26

financial crisis, if we can call it that, is

30:29

not over yet.

30:30

Did the McCrady or Davis, that same skeptic,

30:32

might say that Elvis is alive and is behind

30:35

all this? Anybody could say anything. Of

30:37

course, this conversation takes place on a Thursday.

30:40

While we're on the phone, another big

30:42

bank, First Republic, got bailed out

30:44

by other banks. And then 48 hours

30:47

later over the weekend, Credit Suisse, which

30:49

is one of the biggest banks in the world, essentially

30:52

has to be rescued by the Swiss government in this huge

30:54

deal in which they get taken over by another giant

30:56

bank.

30:57

So there's a quality of Frank

31:00

burying his head a little bit in the sand

31:03

around just how big a deal this

31:05

has all become and the role

31:08

that the growth of banks that

31:10

he helped happen played

31:13

in this crisis. Yeah, I don't know if he's burying

31:16

his head in the sand and he might turn out to be right.

31:18

And it might be the case that by mid-April,

31:21

no one is thinking about this as a huge crisis and this

31:23

might turn out to be a blip. It's hard

31:25

to predict the future, but it felt to

31:27

me like he was contorting himself a little bit to

31:30

make an argument that the changes that he had

31:32

endorsed really did not have

31:34

any effect at all. And so I asked him at

31:36

one point in the interview, you were the author of this

31:39

very important legislation. You then support

31:41

rolling back portions of that legislation,

31:44

and then you end up sitting on the

31:46

board and getting paid for

31:49

by a company that is a beneficiary

31:51

of those legislative changes. And

31:53

that bank fails, and

31:57

that has caused a lot of concern

31:59

about this. of the financial system.

32:03

So what's your question? I mean, I knew

32:05

all that. My answer is that

32:08

nothing I did was in any way

32:10

positive of the failure. That

32:13

the failure was not as systemic

32:16

as people thought. In fact, it was a failure mostly

32:19

confined to damage to that institution.

32:22

And Frank really at the end of the day kept

32:24

pointing to the political reality that

32:26

he and other Democrats were facing back in 2018 when

32:29

Dodd-Frank was under attack in Congress. So,

32:31

like I said, that in fact,

32:33

the reason I advocated changes in

32:36

part was I thought they were changes

32:38

that did not in any way diminish

32:41

the importance of the bill and its impact

32:43

and were helpful to support

32:45

politicians who were under pressure to

32:48

vote for more serious

32:50

rollbacks. And that's why I supported

32:52

the

32:53

notion of removing the politically

32:56

most inflammatory parts of of it

32:59

that did not interfere with its

33:01

impact. So that's my answer.

33:04

And I think I feel vindicated by that.

33:06

He says that at the time, the

33:09

decision to kind of make this concession on

33:11

the $50 billion threshold was actually

33:13

a very savvy political move. It

33:15

was basically made to save Dodd-Frank

33:19

in its entirety. And his argument was that by

33:21

making this concession, Democrats

33:23

and Republicans would both support it and would

33:26

kind of take the momentum away from

33:28

some of the Republicans who were most

33:30

intent upon completely gutting or

33:33

destroying Dodd-Frank. And so in his

33:35

view, this compromise,

33:36

even if it's imperfect, it

33:38

still preserved Dodd-Frank

33:41

for the most part in its entirety. Hm. So

33:44

the story he's telling you, the story perhaps he's telling

33:46

himself,

33:47

is that in order to save Dodd-Frank,

33:50

he had to weaken

33:52

it. And saving Dodd-Frank was

33:55

worth it

33:56

because that will theoretically prevent a much

33:58

larger financial financial

34:00

crisis than whatever it is we're

34:02

now in the middle of. That's how

34:04

he's thinking about what has happened

34:06

here. That's right. Look, there is no question

34:08

that had Dodd-Frank been rolled back entirely,

34:10

I think the financial mess that

34:13

we're now in would probably be a lot

34:15

worse. But I also think at the same time

34:17

that this is a bit of an ex post facto justification

34:20

by him for doing something

34:22

that

34:23

clearly has put him in a really

34:26

bright and uncomfortable spotlight. He

34:29

says he just does not really care what

34:31

other people have to say about him. One

34:34

of the great pleasures

34:35

of leaving elected office is

34:38

that you are no longer subject

34:40

to an

34:42

impact from the opinions of people

34:45

who you do not respect and do not know. You

34:48

know, at this point in my life, I

34:50

don't care.

34:52

So, David, I'm curious, what happens to Barney

34:55

Frank's job on the board of signature

34:58

now that signature kind of is no more.

35:00

It was vaporized the

35:02

moment regulators seized it. The board was dissolved

35:05

and Barney Frank was out of his job.

35:11

He seemed okay with that though. He told me that

35:13

he was scheduled of a board meeting for signature

35:16

in New York the day before our interview.

35:18

That meeting was canceled, the signature was

35:20

done. And instead he was able to get

35:22

an earlier flight down to the Caribbean and

35:25

just get back to being a private citizen.

35:27

Well,

35:35

David, thank you very much.

35:38

Thank you

35:41

for having me. We'll

35:48

be right back.

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Here's what else you need to nerdy.

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We know a strike will be a sacrifice,

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but we also know that our families

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law on poverty wages. In

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the richest state, in

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the richest country of the world. America's

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second largest public school system ground

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During the strike, classes will

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37:28

Today's episode was produced

37:30

by Will Reid, Mary Wilson,

37:33

Diana Nguyen, and Ricky Nowitzki.

37:36

It was edited by Lisa

37:37

Chow, contains original

37:40

music by Mary Lozano, Dan

37:42

Powell, Brad Fischer, Alicia

37:45

by YouTube and was engineered

37:47

by Chris Wood. Our

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theme music is by Jim Runberg and

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Ben Lansfer of Wonderland.

37:56

That's it for

37:59

this video. the Daily.

38:01

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38:03

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in theaters March 24th.