Warren presses Fed to fortify banks as recession fears grow
Senator Elizabeth Warren has called on the Federal Reserve to strengthen safeguards for the US banking system by activating a capital tool designed to protect against systemic risk, warning that the economy could be heading toward a recession.
In a letter to Federal Reserve Governor Lisa Cook, who oversees financial stability, the Massachusetts Democrat said the central bank should immediately raise the countercyclical capital buffer, or CCyB, which requires large banks to hold extra capital during periods of heightened risk.
Warren said the Fed is “moving in the opposite direction” by loosening safeguards at a time of growing economic vulnerability.
“Better capitalized banks lend more to businesses and households and are better positioned to buoy the economy in a recession – a reality growing increasingly likely in light of President Trump’s economic mismanagement,” she wrote.
The CCyB framework was created in 2013 under the Dodd-Frank Act and has been reviewed annually since 2016.
Despite more than 30% economic growth and periodic spikes in risk over the past decade, the Fed has kept the buffer at zero. Warren accused the central bank of failing to follow its own policy by not holding a vote on the CCyB for the past five years.
“It’s time to finally activate it,” she said, pointing to the Fed’s April financial stability report, which flagged high asset valuations, hedge fund leverage, and reduced liquidity in US Treasury and equity markets.
The report’s survey also highlighted growing concerns about global trade risks, policy uncertainty, persistent inflation, and potential market corrections.
Warren linked some of these threats to Trump’s trade policies, citing Fed projections that tariffs could push inflation higher, increase unemployment, and slow economic growth. She also warned about the rapid rise of private credit, noting a 145% jump in bank loans to private debt funds.
“The Fed expects the CCyB will be activated ‘when systemic vulnerabilities are meaningfully above normal.’ Current conditions are exactly what the CCyB is designed to protect against,” she wrote.
The senator urged Cook to use her position to push the Board to reverse course and increase capital requirements, arguing that without stronger safeguards, taxpayers, small businesses, and families could again be left to bear the costs of bank failures.
Warren ended her letter by demanding to know why the Fed has failed to vote on the CCyB since 2019 and when it plans to hold a vote for 2025. She requested a response from Cook, as well as Fed Chair Jerome Powell and Vice Chair for Supervision Michelle Bowman, by September 5.
A Federal Reserve spokesperson confirmed receipt of the letter and said the central bank would respond.