Economic Growth, Regulatory Relief, and Consumer Protection Act--Motion
Floor Speech
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Mr. WARNER. I thank the distinguished chair.
Mr. President, first of all, let me thank my good friend, the Senator Indiana, for his great work on this and actually getting rid of half of my speech. I think he started to go through, in very good detail, a number of the new consumer protections that are put into this legislation, and a lot of that is due to his good work.
The truth is, in a few days, we may actually do something that hasn't been seen in a really long time--the Senate producing a meaningful piece of legislation with a strong bipartisan coalition.
Now, neither side got everything they wanted. I compliment the chairman for his good work, but as my friend from Indiana--you should have seen the original list of wants of the Senator from Idaho. The truth is, we are only here because, at the end of the day, we all went back and recognized the people we work for--our constituents in our respective States and, for that matter, Americans at large--one, they want to see the Senate work; and, two, they want to see it work in a meaningful way to protect people's lives. What this legislation will do is, bottom line, make sure there is more access to capital on Main Street by cutting some of the excessive regulations on community banks and credit unions, as well as a number of the consumer protection items and others that have been put forward. It also provides some relief for regional banks and, as mentioned, major expansion of consumer protections.
Let me also step back. As somebody who got to the Senate right after the financial crisis, we all know the system needed stronger financial reform a decade ago, and I am very proud of the role I played, in some small way, on drafting Dodd-Frank. Title I and title II were areas that then-Chairman Dodd gave me a great deal of responsibility.
Let me be clear that I will do nothing and support no legislation that seriously undermines or cuts back on the provisions and the systemic protections that were put in place by title I and title II and, for that matter, for all of Dodd-Frank, but 8 years later--2 years it took us to do the bill--there is widespread agreement that some of the standards we set in Dodd-Frank needed time for review.
One of those was the standard we put in place at the $50 billion threshold for enhanced prudential standards. We know, 8 years later, that number is just too low. There is a legitimate debate about where that standard should be reset, but recognizing that this standard was set 8 years ago at $50 billion, if you just take inflation and growth in the economy, it would be dramatically different. That is a view shared by Federal Reserve Gov. Dan Tarullo, who is the architect of much of the legislation implementing Dodd-Frank. It is also the view of former Federal Reserve Chair Janet Yellen and current Reserve Chair Jay Powell.
The fact is, there is an awful lot of difference even between some of these regional banks and some of the largest six banks in our country. At this point, they still control about 60 percent of all total assets.
If we don't do this legislation, what we will see--and this is where, again, I have to disagree with some of my Democratic colleagues--is there will be more pressure on consolidation, not only for community banks and credit unions but, for that matter, more consolidation among regional banks, which will place more and more power in those largest of institutions, where I think we have pretty good protections and protections that we don't want back at all in this legislation, but I don't think we ought to encourage that greater consolidation. So, again, we focus not only on community banks and credit unions but also on some of these regional banks.
I want to make clear, what we have done is make no changes to the applicability of enhanced prudential standards for the big banks with assets above $250 billion. These are both the largest and, in many ways, because of some of their products, the riskiest financial institutions, and the full set of postcrisis regulations should apply to them, but we have required the Fed to tailor those standards appropriately for banks with total assets between $100 billion and $250 billion. I want to highlight that the bill actually sets a very low bar for the Fed to apply enhanced standards to regional banks.
Under the bill, the Fed can apply enhanced prudential standards to a bank with assets larger than $100 billion for financial stability reasons or to promote the safety and soundness of the bank--part of their traditional prudential regulations as they stand, but I don't think every enhanced prudential standard should apply to every bank with assets larger than $100 billion. There is a broad agreement that standards should be tailored for this group.
Again, let me cite someone whom most of the folks on this side of the aisle, myself included, have a great deal of respect for: former Fed Chair Janet Yellen. She called this bill ``a move in a direction that we think would be good.''
More recently, Chairman Powell testified that the Fed will implement standards over the next 18 months for banks with assets between $100 billion and $250 billion. Chairman Powell also testified that the regional banks will continue to be subject to the most important enhanced prudential standard: meaningful, strong, and frequent stress tests. Those are his words, not mine. He called himself a strong believer in stress testing. Again, let me say, so am I.
Critically, again, this bill does not change the existing requirement that the Fed conduct annual stress tests on banks with assets larger than $250 billion. I know I am getting into a lot of details, but details in banking regulations are important. Again, unfortunately, I don't think some of my colleagues who are in opposition to the bill are setting out what this bill truly does or doesn't do.
Again, let me point out another thing on stress tests. The bill also does not alter the comprehensive capital analysis and review or what banking regulators call the CCAR process. The Fed capital planning process is actually not part of Dodd-Frank, but it is another core pillar of the Fed's supervisory regime. We believe it should continue to apply as much as it does today.
So for banks within this $100 billion to $250 billion range, you have not only CCAR, but you have the chairman himself saying he will put in place--somewhat similar to the existing DFAST stress test--meaningful, strong, and frequent stress tests. As has been mentioned as well, banks with assets above $250 billion should expect to have the annual stress test.
Let me touch on another subject, foreign banks. Another thing this bill does not do is change the enhanced prudential standards applied to the largest foreign banks' U.S. operations. This gets pretty technical, but I think for the record it is important that it is reflected.
All foreign G-SIBs that have total consolidated assets greater than $250 billion have enhanced prudential standards, and those enhanced prudential standards will continue to apply to these largest and systemic important foreign banks, and the Fed will continue to have the authority to apply these enhanced prudential standards on foreign banks with total consolidated assets of more than $100 billion.
So a large foreign bank--let's say Deutsche Bank, for example, that had problems recently--that may have only $100 billion or less than $250 billion of American assets, but the fact that their consolidated balance sheet has greater than $250 billion will mean that the Fed will continue to enhance the full G-SIB regulation.
Again, let's move to Chairman Powell. He was approved by 84 Senators to this post--40 Democrats. He made clear in his Banking Committee testimony that the Fed requires establishment of intermediate holding companies by certain foreign banking organizations independently of Dodd-Frank. Chair Powell made clear that nothing in this bill requires any change to the IHC requirement. This is by design, as we believe the IHC requirement is an important innovation that greatly helps international holding companies. For those keeping track of these comments, it is an important innovation that greatly helps the Federal Reserve supervise and apply enhanced prudential standards to the U.S. operations of foreign banks.
As explained by the Federal Reserve in its final rule, in applying enhanced prudential standards to foreign banking organizations, there were unique financial stability issues associated with some of the large foreign banks' operations in the United States during the crisis.
We remember that it was some of the foreign banks and operations in the United States that were part of causing the crisis back in 2008, and those enhanced standards need to stay in place.
In that final rule and in other rules implementing prudential requirements for the intermediate holding companies of foreign banks, the Federal Reserve has distinguished between which standards should apply to U.S. banks and the IHCs of foreign banks and how they should apply it.
The Federal Reserve remains fully capable of assessing the unique risks associated with large foreign banks' U.S. operations and applying appropriate enhanced prudential standards on these institutions and their IHCs, giving due regard to the principle of competitive equality, while remaining focused on the mandate under this bill and under section 165 of Dodd-Frank to protect financial stability and safety and soundness.
This is the final point I want to make. I also want to make clear that my support for section 402 in this bill--again, which deals with a technical issue but a very important issue, the supplemental leverage issue, which excludes deposits from the calculation of supplemental leverage ratio for custody banks--this exclusion for custody banks, those assets deposited within a central bank, such as the Fed, while we are carving out this one exclusion, it does not mean that I support removing other assets from the calculation of that leverage ratio.
Again, there is widespread agreement from former Governor Tarullo to current Chair Powell that the leverage ratio should not be the binding capital constraint on custody banks because of a unique business model that relies on less risky business.
When the leverage ratio is the binding constraint on a business, it encourages actually riskier activity and rewards making bets that tend to decrease, rather than increase, safety and soundness. That gives the wrong incentive. This bill will fix the narrow problem that exists for custody banks and goes no further.
I personally say that I would have no support for any movement further than what is narrowly carved out in this bill.
I know my friend the Senator from Vermont is here, and he will have a different opinion on some of these issues, but I want to again thank Senator Crapo. As well, I do hope we will have a chance to enter into further colloquy on this debate and to further make clear for the record both his and my support for strong capital, that our system is stronger and, particularly for the largest institutions, that nothing we are doing will reverse keeping American banks the strongest in the world.
I know there are strong opinions on the other side. I look forward to the continued debate. I look forward to a managers' package that I believe will actually continue to expand certain areas around consumer protections and other areas where there is broad-based general agreement. I look forward to the conclusion of this debate and an amendment process that again allows other issues to be vetted.
With that, I thank the chairman, and I look forward to further discussions.
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Mr. WARNER. Mr. President, if I could ask the Senator a question--we may come back for a more formal colloquy at some point. We are working on some additional language to further reinforce this point.
I thank the chairman for his good work on this bill. I am thankful for the fact that the legislative Record will reflect at least this short conversation and other speeches and conversations which recognize that a consolidated balance sheet of foreign banks, if they only have $100 billion in assets in the United States but $1 trillion in total assets, will still be subject to the enhanced prudential standards.
Again, I thank the chairman and look forward to continued debate.
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