Senator Elizabeth Warren explained to “Squawk on the Street” co-Anchor Sara Eisen why it is imperative for outside forces to stress test banks after the failure of Silicon Valley Bank.
Warren explained that the US needs to change the law to tighten regulations against banks valued between 50 and 250 billion dollars after it was changed in 2018.
"The tranche between $50 billion, and $250 billion, I think we've seen that's just too dangerous. Too dangerous for our economy, and that's why we need to change the law," Warren said.
"We've had a number of those CEO's come on in the last few days -- [claiming] they do their own stress testing. Not everyone was behaving in a risk profile and risk manner that Silicone Valley bank was," Eisen said.
Senator Warren laughed.
"I'm sorry, I taught school for many years, and I did not let my students do their own testing," she said. "The testing that is meaningful is the testing when it comes from the outside."
"And it's also the testing where you don't give the answers in advance," Warren said. The whole point of stress testing is for someone outside the bank to say 'hmmm, what could go wrong here' and make sure the bank could withstand those kinds of problems like an increase in interest rates."
After the financial collapse of 2008, banks must never be trusted to police themselves.
"That's the point behind the stress testings, and for these banks to say 'not to worry we're testing ourselves' is truly laughable," Senator Warren said.
That's exactly right.
