WASHINGTON (MarketWatch) — In her first hearing as a U.S. senator Thursday, Elizabeth Warren criticized federal regulators for settling civil cases with Wall Street banks instead of taking them to trial.

“I want to note that there are district attorneys and U.S. attorneys who are out there everyday squeezing ordinary citizens on sometimes very thin grounds and taking them to trial to ‘make an example,’ as they put it,” she told bank regulators testifying at a Senate Banking Committee hearing. “I am really concerned that too-big-to-fail has become too-big-for-trial.”

Sen. Elizabeth Warren Reuters

Warren, a Massachusetts Democrat, has long been known as a stanch defender of consumers. She was a lone voice in the wilderness for the creation of an independent agency to write rules for mortgages and credit-card products. That agency, the Consumer Financial Protection Bureau, is at the center of a firestorm of criticism from Republicans over its structure, funding and the appointment of its director. Before winning election as a senator, Warren oversaw a panel responsible for reviewing bank bailouts implemented to stem the financial crisis of 2008.

Warren acknowledged that trials are expensive but she insisted that if an agency is unwilling to go to trial it is because they are “too timid” or lack resources. She said that the consequence is that if large financial institutions can break the law and “drag in billions” in profits and settle, then they don’t have much incentive to follow the law.

“Every time there is a settlement and not a trial, it means we didn’t have the days and days and days of testimony about what those financial institutions were up to,” Warren said.

The Justice Department can take banks to trial on both criminal and civil charges, while bank regulators engage in civil enforcement actions, which can include trials. Bank regulators also can also make referrals to the Justice Department for criminal proceedings against banks or individuals.

Warren asked bank regulators how tough they are and raised the question about when was the last time any regulator took a Wall Street bank to trial.

“Anybody?” she asked. Warren’s comments received a smattering of applause.

Thomas Curry, the Comptroller of the Currency, which regulates national banks and thrifts, said the agency has not had to bring big banks to trial “as a practical matter” to achieve the regulator’s supervisory goals.

Curry added that the agency has had a fair number of consent orders “so we don’t have to bring people to a trial.” He said the primary motive of the agency’s enforcement actions is to identify the problem and demand a solution to it on an “on-going” basis.

Big banks include J.P. Morgan Chase & Co. JPM, +0.42% , Citigroup Inc. C, +2.70% and Goldman Sachs Group Inc. GS, +1.35%

Securities and Exchange Commission Chairman Elisse Walter said that she believes the agency has a “very vigorous enforcement program” and that the commission looks at the distinction between what could be achieved in trial vs. what the SEC could obtain without a trial.

An SEC spokesman said the agency is “fully prepared” to go to trial every time the commission files a lawsuit. However, he added that there is “no reason” under the SEC’s authority to delay justice and relief for investors when the agency can “get it all without a trial.”

The SEC took the co-managers of the Reserve Fund Management that “broke the buck” in 2008 to trial in September 2012. Bruce Bent II, one of the members of the management team, was found liable on one claim of negligence. Read about what to expect from Warren on Senate bank panel

“As you know among our remedies are penalties, but the penalties we can receive are limited and we have asked for additional authority to raise penalties,” Walter said.

Last month Warren and Rep. Elijah Cummings, a Democrat from Maryland, sent a letter to Federal Reserve Chairman Ben Bernanke and Curry seeking documents about a series of mortgage settlements with large banks over foreclosure abuses stemming from the so-called robo-signing scandal. The Fed and the Office of the Comptroller of the Currency reached settlements last month with 13 big banks over the abuses. The two lawmakers sought the information to “identify the scope of the harms found” to establish “confidence in the sufficiency and integrity of the settlement”

Tarullo: changes to Volcker rule ahead

Federal Reserve Governor Daniel Tarullo told the committee that there will be changes to the final version of the Volcker Rule, a measure under consideration by bank and securities regulators intended to limit speculative activity by big banks.

Tarullo told participants that he think it is “pretty clear” that proposals for the Volcker Rule and bank capital regulations also under consideration by the Fed have “leaned too far in the direction of complexity.”



“I would expect a good bit of change in the final rule makings,” he said.

He added that bank regulators are “carefully” considering rules to implement a global agreement on greater bank capital buffers, with hopes to finalize the regulations in the spring.

The rules are considered a critical step to ensure large institutions are sufficiently cushioned against future financial shocks.

The Federal Reserve and two other bank regulators introduced a proposal in June to implement the global agreement known as Basel III that suggested an effective date for institutions to comply of Jan. 1.

However, the U.S. regulators agreed in November to delay its approval “due to the wide range of views” expressed by interested institutions and others.

Curry said financial institutions under the regulator’s oversight have made “significant strides” since the financial crisis in repairing their balance sheets through stronger capital, improved liquidity and timely recognition and resolution of problem loans.

Curry added that banks and thrifts still face “significant challenges.”

Curry noted that national banks and federal savings associations have Tier 1 common equity -- a core measure of a bank’s financial strength -- at 12.5% of risk weighted assets. That is up from a low of just over 9% in the fall of 2008, he added. Read about how eight states are fighting U.S. plan to contain failing big banks