Warren's hearing performance struck fear into some of the loftiest corner offices. Warren strikes fear into Wall Street

NEW YORK — Some bankers hoped that Sen. Elizabeth Warren, the liberal firebrand who helped create the Consumer Financial Protection Bureau, would be subdued in her first term as she learned the ways of the Senate. Warren’s avoidance of the Beltway media appeared to stoke these hopes.

Well, forget it.


Warren, a Massachusetts Democrat, came out blazing Thursday in her first high-profile appearance as a member of the Senate Banking, Housing and Urban Affairs Committee, ripping into regulators and starkly suggesting banks may be cooking the books.

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Her performance struck immediate fear into some of the loftiest corner offices on Wall Street and lobby shops on K Street. Bankers in New York and Washington called her portrayal of the industry deeply unfair and said it did not account for the many tests applied in recent years.

“We have been through more tests and thorough exams than any college student over the past four years, including many conducted by the CFPB,” said Richard Hunt, president and chief executive of the Consumer Bankers Association.

One top Wall Street executive accused Warren of “shameless grandstanding” during the hearing, especially after she suggested that one reason the stocks of big banks might now be trading at surprisingly low levels is investors don’t trust their accounting is real.

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“Most big corporations trade well above book value,” Warren said, referring to the measure of a company’s assets minus liabilities. “But many of the Wall Street banks right now are trading below book value. And I can only think of two reasons why that would be so. One would be because nobody believes that the banks’ books are honest, or the second would be that no one believes that the banks are really manageable.”

Bankers said the real reason large financial institutions often trade below book value is there are concerns over the economy and the many regulations and increased capital requirements enacted through the Dodd-Frank financial reform law and other global responses to the financial crisis.

The bankers spoke mostly on condition that they not be identified by name or firm because they have to deal with Warren for the next six years at least.

“While Sen. Warren had every right to ask pointed questions at [Thursday’s] Senate Banking Committee hearing, her claim that ‘nobody believes’ that bank books are honest is just plain wrong,” the executive said in an email. “As Federal Reserve Governor [Daniel] Tarullo explained in response to her question, the low valuations are more likely due to continued economic uncertainty and concerns on the part of investors regarding the impact on banks’ profitability due to the hundreds of new regulations.”

The executive added: “Elizabeth warren and [Texas Republican Senator] Ted Cruz are dueling for the title of ‘most extreme fringe freshman senator.’”

Warren’s comment on bank accounting came after she repeatedly — and apparently rhetorically — asked a panel of top regulators to cite the last time they had hauled a big Wall Street bank into court rather than settled. There were mostly halting responses and promises to get back to Warren with more information at a later time.

That question — why there has not been more accountability for top bankers in the wake of the 2008 financial meltdown — taps into a deep vein of public anger on both the left and right. And it is Warren’s most potent political weapon.

Video of Warren’s appearance at the banking committee got heavy traffic Thursday on Twitter and left-leaning websites. The performance suggests Warren will keep pounding bankers from her perch in the Senate for years to come, including as critical final pieces of the Dodd-Frank law covering bank risk-taking trading and other formerly lucrative activities are completed. Some bankers hoped that final rule-making process would take place far from the spotlight. Warren’s fiery questions on Thursday suggest that will not be possible.

Hunt defended the industry, citing recent studies indicating that banks are much safer than they were before the crisis as well as testimony at the hearing from Comptroller of the Currency Thomas Curry on increased capital levels.

“The United States banking system is safe and sound, supported by historic and permanent capital ratios,” Hunt said. “We are working every day to fulfill the financial needs of the American consumer and small business and will continue to work with any and all lawmakers who seek to assist in this extremely important process.”

For now at least, Warren seems much less inclined to assist bankers than to make their lives extremely uncomfortable.