I rise today to congratulate my colleagues in the Senate and the House for completing the conference report to accompany H.R. 4173, the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Over the past 30 years, our regulatory framework did not keep pace with financial innovation. It was particularly impotent with regard to oversight of the so-called shadow banking system, which evolved in large part simply to avoid regulation
Decreased regulation led to irresponsible behavior by financiers, investors, lenders, and consumers. Collectively, we failed to mitigate risk and we ignored established principles of finance – prudence, solvency, and accountability.
We can shift risk, but we can’t make it magically disappear.
Bubbles do burst eventually.
Everyone played a part in the crisis. Together, we suffer the consequences. No man is an island; we are all connected.
Risky mortgage lending – practices including “no-doc” or “stated income” loans, no down payments, and subprime lending led to unprecedented foreclosures.
Consumers securing mortgages beyond their means and horrible predatory lending practices permeated our culture.
Even responsible consumers suffered at the hands of aggressive lenders with dubious intentions.
The mortgage lending system was seriously flawed.
America got hit by a tidal wave of foreclosures.
Declining home values affect everyone in the community.
And problems in mortgage lending became exacerbated when these bad mortgages were packaged into securities and sliced and diced and sold to investors with AAA credit ratings.
Careful underwriting went out the window because the loan originators sold the notes as fast as they could write them.
The bill the Senate is considering goes a long way to restore the order we need in the financial markets, improve oversight of the mortgage industry, and address the numerous other issues that led to the worst financial crisis since the Great Depression.
This bill holds
Wall Street more accountable and provides the strongest consumer protections ever for American families and small businesses.
I know t
here are partisan disagreements on some parts of this legislation and it was a challenge to get to this point, but the chairman and ranking member of the Banking Committee did an outstanding job on this bill and are to be commended for their effort.
This is a landmark bill, like Sarbanes-Oxley and the original Securities & Exchange Commission Act.
The lesson we had to learn (again) is that business – especially big business – cannot regulate itself adequately.
I think H.R. 4173 strikes the right balance in reigning in the financial services industry without being unduly burdensome.
I would like to take the time I have to review some of the provisions I worked on that have been included in the bill:
Deposit Insurance Reforms
Senators Enzi and Brownback joined me in proposing changes to the deposit insurance program.
The Independent Community Bankers of America (ICBA), the American Bankers Association (ABA), and the National Credit Union Association (NCUA) all supported our amendment – now found in Section 335 of the bill – to make the temporary increase in the federally-insured deposit limit from $100,000 to $250,000 a
An increase in the Federal Deposit Insurance Corporation (FDIC) and National Credit Union Share Insurance Fund (NCUSIF) limit is significant because deposit insurance has been the stabilizing force of our nation’s banking system for 75 years.
By raising the limit permanently, we provide safe and secure depositories for small businesses and individuals alike.
FDIC insurance prevents bank runs and has been proven to increase public confidence in the system.
FDIC insurance limits are especially significant to community banks, which rely on deposits much more heavily than larger banks.
On average, smaller banks derive 85 to 90 percent of their funding from deposits.
Ensuring a stable funding source for community banks helps these institutions to continue providing crucially important capital to the small businesses whose growth is at the heart of our economic recovery.
Enhanced Supervision for Nonbank Financial Companies
During Senate consideration of the bill, I introduced an amendment with Senator Mikulski to ensure that mutual funds and their advisers are not inadvertently subjected to unworkable standards in the unlikely event the Financial Stability Oversight Council designates them as systemically risky.
In Section 115 of the bill, the new Council is given the flexibility to consider
capital structure, riskiness, complexity, financial activities, size, and other factors when determining heightened regulatory standards.
This is important for addressing the unique characteristics of companies that are structured differently from banks and bank holding companies.
I am gratified the House and Senate conferees saw fit to retain an amendment (S. Amdt. 3840) Senator Grassley and I offered to the bill to extend whistleblower protections to employees of Nationally Recognized Statistical Rating Organizations (NRSROs).
The provision is Section 922 (b) of the bill.
NRSROs are the companies (such as Moody’s and Standard & Poor’s)
U.S. Securities and Exchange Commission
(SEC) permits other financial firms to use for certain regulatory purposes.
There are 10 NRSROs at present, including some privately-held firms.
The NRSROs played a large role – by overestimating the safety of residential mortgage-back securities (RMBS) and collateralized debt obligations (CDOs) – in creating the housing bubble and making it bigger.
Then, by making tardy but massive simultaneous downgrades of these securities, they contributed to the collapse of the subprime secondary market and the “fire sale” of assets, exacerbating the financial crisis.
A Permanent Subcommittee on Investigations (PSI) hearing made it quite clear that competitive pressures and inherent conflicts of interest affected the objectivity of the ratings issues by the NRSROs.
Since NRSRO ratings are used for various regulatory purposes such as determining net capital requirements and the soundness of insurance company reserves, it makes sense to extend whistleblower protections to employees who might come across malfeasance at a credit rating agency.
There are many reasons for the massive failure of the NRSROs.
The Wall Street reform bill contains several provisions to improve SEC and Congressional oversight of the NRSROs and how they function.
Extending whistleblower status to the employees of these firms enhances the provisions already in the underlying bill.
Energy Security Through Transparency (ESTT)
My distinguished colleague Senator Lugar and I worked particularly hard on the “Energy Security Through Transparency” provision in this bill, which is Section 1504 – Disclosure of Payments by Resource Extraction Issuers.
I am especially grateful to Senator Leahy, who championed this provision in the conference committee.
The geography and nature of the oil, gas, and mining industry is such that companies often have to operate in countries that are autocratic, unstable, or both.
Investors need to know the full extent of a company’s exposure when it operates in countries where it is subject to expropriation, political and social turmoil, and reputational risks.
In Nigeria, for example, American companies have had to take oil fields off-line because of rebel activity and instability in the Niger Delta.
Last year, Nigeria was producing almost a million barrels of oil less than it was able to produce because of conflict and instability.
With so much production off-line, American oil companies such as Chevron and Exxon have laid off workers and paid higher production costs because of added security.
This bipartisan amendment goes a long way to achieving transparency in this critical sector by requiring all foreign and domestic companies registered with the U.S. Securities & Exchange Commission (SEC) to include in their annual report to the SEC how much they pay each government for access to its oil, gas, and minerals.
This amendment is a critical part of the increased transparency and good governance that we are striving to achieve in the financial industry.