Warren Presses Mnuchin Over Christmas Eve Call With Regulators

(Bloomberg) -- Senator Elizabeth Warren has asked Treasury Secretary Steven Mnuchin to explain his emergency phone call with financial regulators on Christmas Eve that spooked investors, triggering memories of a market liquidity crisis.

In the final weeks of December, the S&P 500 was in the midst of a 7 percent drop -- bringing equities to the brink of a bear market. The U.S. government’s partial shutdown had started, and Bloomberg News had reported that President Donald Trump had discussed firing Federal Reserve Chairman Jerome Powell. The Fed had drawn the president’s ire after a hawkish statement signaling further rate hikes that roiled markets.

The combination of events led to further chaos in financial markets, and Mnuchin stepped in with a tweet on Dec. 23: He had called the top six U.S. banking executives to confirm there was “ample liquidity” for lending purposes. Mnuchin also announced he had organized a call of the President’s Working Group, made up of top U.S. regulators and traditionally only convened in moments of crisis, for the following morning.

Investors hadn’t been concerned about bank liquidity before Mnuchin’s statement.

‘Plunge Protection Team’

“The public announcement of these calls was a rare step for a Treasury secretary to take,” Warren, a Massachusetts Democrat who is running for president, wrote in a letter to Mnuchin dated Jan. 18 and obtained by Bloomberg News. The “calls sought to assuage a concern -- the liquidity of banks -- that neither banking regulators nor executives had publicly indicated was a problem.”

The President’s Working Group, given the moniker “plunge protection team” by investors, was formed in the aftermath of the stock market crash of 1987. It has been infrequently summoned to help the Treasury chief take the pulse of the investor community and show the government is looking out for the health of the broader U.S. economy.

The group includes representatives from the Federal Reserve Board, the Securities and Exchange Commission and the Commodity Futures Trading Commission.

One of Mnuchin’s predecessors, Hank Paulson, who served during the George W. Bush administration, called a meeting of the group with the president in 2008 following the government’s bailout of Bear Stearns Cos. Paulson said at the time that he would “do what it takes” to calm markets.

Mnuchin’s convening of the Working Group for the Dec. 24 call was even more unusual because he now also chairs the Financial Stability Oversight Council, a group of regulators formed after the 2007-2008 crisis. That group polices the kind of market turbulence and liquidity issues about which Mnuchin asked the Working Group.

“Given the out-sized role of liquidity problems in the 2008 financial crisis, we would like to better understand the risks to the U.S. banking system that triggered your concerns and prompted this rare public statement,” Warren wrote in her letter.

Financial Risks

Warren, a member of the Senate Banking Committee, requested that Mnuchin explain what prompted him to call the banking executives and regulators in the first place, along with transcripts, summaries and other documentation related to both calls. She also asked if Treasury has information about financial risks that could hurt the American economy.

She gave Mnuchin a Jan. 28 deadline to respond.

Warren also sent letters to each of the six banking executives that Mnuchin called before Christmas, asking how events during the week of Dec. 17 affected liquidity, whether they see liquidity risks, and details about the call and actions taken afterward.

She sent the letters to Jamie Dimon of JPMorgan Chase & Co., Mike Corbat from Citigroup Inc., Goldman Sachs & Co.’s David Solomon, James Gorman of Morgan Stanley, Tim Sloan of Wells Fargo & Co. and Brian Moynihan of Bank of America Corp. The banks and the Treasury Department either declined to comment or did not respond to requests for comment.

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