Overseeing Our Financial Markets

Floor Speech

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Ms. WARREN. Mr. President, 8 years ago, we suffered through the worst financial crisis in generations. Millions of people lost their homes, their jobs, and their savings. Although the economy has improved under President Obama's leadership, many of those families are still struggling to recover today.

Terrible subprime mortgages were at the heart of this crisis, but Wall Street invented other new financial devices, including exotic derivatives, that piled risks on top of risks in the financial market. The subprime mortgages were like hand grenades, but the derivatives packed them together and magnified the risks, turning them into giant bombs that blew up parts of the economy. The Financial Crisis Inquiry Commission concluded that derivatives ``contributed significantly'' to the crisis, ``amplifying'' losses many times over and exposing institutions and investors throughout the system.

Do you remember the billions and billions of taxpayer dollars that Congress shoveled into AIG as part of the bailout? That was to cover the massive losses from risky derivatives that went south.

In response to the crisis and the bailout, Congress dedicated an entire title of the Dodd-Frank Act to the regulation of derivatives. Congress tried to make the derivatives market more transparent so that both investors and regulators could have at least a fighting chance to identify the risks and to address them. Congress also tried to reduce the risk to taxpayers by requiring banks to raise more capital as they increased their derivatives exposure and by forcing banks to push out that derivatives exposure from their depository banks--the parts that actually hold checking and savings accounts--and to put them into another entity that doesn't have access to taxpayer-backed insurance.

Over the past few years, the Dodd-Frank approach to derivatives has started to unravel. At the end of 2014, the swaps pushout was repealed. How? Because lobbyists for Citibank literally wrote the amendment and had a friendly Congressman slip it into the end-of-the-year spending bill--a bill that had to pass or the government would shut down. With the help of other big banks, including personal phone calls from the CEO of JPMorgan Chase, Jamie Dimon, to his personal friends in Congress, the swaps repeal got rammed through Congress.

How big was the hole that this Wall Street amendment blew in Dodd- Frank? Well, Congressman Elijah Cummings and I spent a year looking into it, and here's the takeaway: The FDIC now estimates that the repeal allows a few big banks to put taxpayers on the hook for risky swaps to the tune of nearly $10 trillion. And who is gobbling down most of this $10 trillion risk? Three huge banks--Citigroup, JPMorgan Chase, and Bank of America--three banks, nearly $10 trillion of risk.

These banks will happily suck down the profits when their high-stakes bets work out, and they will just as happily turn to the taxpayers to bail them out if there is a problem--all this because the Wall Street lobbyists persuaded Congress to do just one little favor for them.

Meanwhile, last year, the Commodities Futures Trading Commission finally issued a rule that it was required to write under Dodd-Frank. The rule was about margin, the amount of money that financial institutions have to put up when they enter into a derivative contract. Essentially, the CFTC rule was about making sure that financial institutions had enough money to pay off their derivative bets if they bet wrong. It is the kind of money that keeps the taxpayers from needing to bail them out.

The CFTC rule was exceedingly weak, far weaker than the one they had initially proposed. The changes in the rule came after months of intense lobbying from giant banks that were worried that a stronger margin rule might cut into their profits. As CFTC Commissioner Sharon Bowen wrote in her dissent to the rule:

This action today seems to be a return to blindly trusting in large financial institutions' ability and willpower to manage their risks adequately. Are we really willing to make that bet again?

Well, I know that I am not, and that is why I think the recent Republican bill to weaken the CFTC is so dangerous. Rather than strengthening the agency and plugging the gaps in Dodd-Frank that have emerged in the last few years, the bill goes in the opposite direction, weakening or delaying other Dodd-Frank requirements and starving the agency of the resources it needs to oversee a $500 trillion derivatives market.

I applaud Senator Stabenow, the ranking Democratic member on the Agriculture Committee, for leading the unanimous Democratic opposition to the bill in Committee. Democrats should not be supporting a bill that weakens financial rules, period.

We need strong rules and strong Federal agencies to oversee our financial markets. We learned that lesson the hard way in 2008. While some lobbyists and their friends here in Washington may be trying to forget that lesson, I know that millions of American families remember it all too well, and they will be watching Congress to see who stands on their side and who stands on the side of the big banks.

Thank you, Mr. President.

I yield my time.

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