Volcker Rule Regulatory Harmonization Act
Floor Speech
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Mr. Speaker, I would like to start off with a quote from Speaker Paul Ryan in a 2012 townhall meeting. This is what he said to his constituents: ``If you're a bank and you want to operate like some nonbank entity like a hedge fund, then don't be a bank. Don't let banks use their customers' money to do anything other than traditional banking.''
I agree, and that is why Congress passed the Volcker rule in the wake of the 2008 financial crisis, to prevent taxpayer-backed banks from engaging in risky, speculative activities like owning hedge funds. But since that time, Republicans have engaged in a relentless attack against the Volcker rule at the behest of Wall Street megabanks.
H.R. 4790, the so-called Volcker Rule Regulatory Harmonization Act, is the latest threat to that rule. Specifically, H.R. 4790, contains two problematic provisions that would create a loophole in the Volcker rule and make it easier for the Trump administration to weaken or repeal it.
Leading up to the financial crisis, Wall Street megabanks engaged in proprietary trading, which is essentially speculative, highly leveraged betting that benefits their bottom line but uses federally insured loans backed by the U.S. taxpayer.
These banks gambled on exotic financial instruments like collateralized debt obligations comprised of risky subprime mortgages and credit default swaps, which even the legendary investor, Warren Buffett, criticized as ``financial weapons of mass destruction.'' When the Housing bubble finally burst, these bets led to massive losses and required the Federal Government to bail out the banking industry with trillions of taxpayer dollars to stop an economic catastrophe. To protect the American taxpayer and the economy from this sort of risky trading as well as to return banks to the business of helping consumers and small businesses, Congress included the Volcker rule's ban on proprietary trading as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Specifically, the Volcker rule prohibits taxpayer-backed banks from engaging in risky proprietary trading and from owning hedge funds and private equity funds. It also prohibits banks from owning the very same risky collateralized debt obligations that accelerated the 2008 crisis.
According to Martin Gruenberg, Chairman of the Federal Deposit Insurance Corporation, that is, the FDIC, which is the agency charged with protecting taxpayers from bank bailouts, ``had it,'' this prohibition, ``been in place then, the Volcker rule would have constrained the proliferation of such instruments.''
The result today is less reckless risk-taking by Wall Street megabanks and a stronger financial system. And despite dire predictions by Republicans, our banks have returned to lending to consumers and businesses, and our financial markets are adapting and thriving.
For example, since passage of Dodd-Frank, bank lending to businesses has increased 80 percent; and in the bond market, which has long been dominated by bank dealers, we have seen record-new bond issuance by companies, States, cities, and towns seeking to raise funds and record trading volumes in those bonds. Most other metrics also show a healthy corporate bond market.
Nevertheless, H.R. 4790 is just the latest Republican attempt to weaken the Volcker rule. First, the bill would provide a blanket exemption from the Volcker rule for 97 percent of our Nation's banks which have consolidated assets of $10 billion or less and with less than 5 percent of those assets in trading assets.
To be clear, most community banks do not engage in any trading activities and, therefore, have no compliance requirements under the rule. However, H.R. 4790 would give all community banks the congressional thumbs-up to begin speculative trading instead of focusing on the traditional business of banking. It also makes community banks prime targets for hedge fund salesmen.
Now, why is this an area of concern for me? It is an area of concern because I hear the community banks when they say that their numbers are going down because of mergers and consolidation. This bill does not help with this problem. It makes it worse because it sends a shining beacon to hedge funds all over the country that they can peddle risky and questionable investments to community banks, and the regulators will be none the wiser.
I am extraordinarily concerned with the extent of the affordable housing crisis our Nation is facing. We need banks to invest in housing and in our communities. I believe that community banks can provide those kind of investments.
But I am also concerned that, if the hedge funds can prey on community banks with little oversight, then they will be unable to provide the kinds of investments in housing and small businesses that communities need. Instead, we will see more community banks investing in hedge funds and possibly leaving these communities behind.
So when Members ask: How can we create more affordable housing or address the issues that experts like Dr. Matthew Desmond are raising on the housing crisis in America, one thing that we can do is not think narrowly about the impact of financial services legislation, and, particularly, legislation like H.R. 4790 that can create lasting, unintended consequences if not carefully considered.
We should think broadly and realize that the policies that we make for banks can have real impacts on the communities they serve. And the regulators and experts have done just that. They have carefully considered the bill's provisions and the unintended consequences that could ensue.
That is why the blanket carve-out in this bill is opposed by former Federal Reserve Chairman and the rule's namesake, Paul Volcker, who has said: ``I know from my long experience in banking and savings and loan regulation that plausibly small loopholes can be `gamed' and exploited with unfortunate consequences.'' Paul Volcker was Chairman of the Federal Reserve for part of the savings and loan crisis, which, during that time, more than 1,000 S&Ls failed, fully one-third of the industry.
The exemption is also opposed by FDIC Chairman Gruenberg, FDIC Vice Chairman Thomas Hoenig, and investors and advocates.
If we truly want to reduce regulatory burdens on community banks that engage in permitted trading activity, we should be looking at other ways to accommodate them, such as by creating a presumption of compliance with the Volcker rule, which reduces compliance costs without opening up a loophole. Rather than encouraging banks, especially community banks, to make speculative bets on hedge funds or derivatives, we should be doing everything possible to ensure banks are focused on supporting their communities by offering mortgages and commercial loans.
Second, H.R. 4790 would repeal the requirement that the Federal Reserve, FDIC; Office of the Comptroller of Currency, that is the OCC; Securities and Exchange Commission, that is the SEC; and the Commodity Futures Trading Commission, that is the CFTC, work together to jointly implement the rule. Instead, the bill would delegate sole rulemaking authority to the Federal Reserve, which could choose to consult or not consult with the other regulators.
This would unreasonably cut the FDIC out of any future rule changes, even though it is the regulator charged with protecting deposit insurance against the very risky, speculative activities the Volcker rule was designed to prevent.
It would also cut the OCC out of the rulemaking process, even though it oversees institutions that account for approximately 40 percent of bank holding company trading revenues.
And it would cut out the SEC and the CFTC, even though those agencies have the expertise and jurisdiction over broker dealers and future traders and their marketmaking activities.
Worse, appointing the Fed a single regulator would make it easier for the Trump administration to weaken and repeal the Volcker rule, even though it was expeditiously promulgated in 2 years and the regulators are now working together to make appropriate changes. While the bill would at least allow the appropriate banking regulators--SEC and CFTC-- to enforce the rule, such enforcement authority is meaningless if the Volcker rule is effectively gutted by the Trump administration.
But this is what my Republican colleagues want. Chairman Hensarling's 600-page Big Bank giveaway, H.R. 10, known as the ``Wrong'' CHOICE Act, would have repealed the Volcker rule outright. H.R. 4790 is merely the latest attempt to do the same thing.
Mr. Speaker, I strongly oppose H.R. 4790, and I reserve the balance of my time.
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Mr. Speaker, when the gentleman from Michigan started his remarks, he accused me of wanting to talk about housing. He is absolutely correct.
I want to talk about housing. I believe that if we really understood the needs of our constituents all over this country, instead of talking about megabanks and how we can give them whatever they want in order to make more profits, we should be talking about housing. We should be talking about housing needs in this country.
As a matter of fact, I have said to the chairman more than once that I really would like to have a hearing on homelessness because homelessness is exploding all over the country. In the city of Los Angeles, we have probably over 53,000 homeless people every night without a place to lay their heads.
Oh, yes, we should be talking about housing. You cannot separate trading from housing in the way that maybe some would attempt to do: Oh, this is about Volcker; it has nothing to do with housing.
Oh, yes, it does.
Because, instead of this risky trading that the banks are doing, they should be investing in our communities and providing for affordable housing.
And let me just tell you, African-American homeownership today is as low as it was when housing discrimination was legal. There is not a single county in the United States with sufficient affordable housing.
So, yes, we should be talking about housing, and thank you for bringing it to my attention. Thank you for accusing me of wanting to talk about housing.
Last year our Nation's banks reported $164.8 billion in profit. Had it not been for the Republicans' new tax law which required them to take a one-time charge, the FDIC estimates that the banks would have profited to the tune of $183.1 billion, which is an all-time high and an increase of 7.2 percent from 2016 and a 26 percent increase from 2006.
So I think it is a little hard to argue that banks don't have enough money to lend, but let's look at what they did with that money.
The Wall Street megabanks returned a lot of that money to their shareholders in the form of dividends and stock buybacks. For example, in June 2017, J.P. Morgan announced a stock repurchase program of up to $19.4 billion, its biggest buyback since the financial crisis.
Citigroup also announced its largest ever stock buyback program, worth up to $15.6 billion, and doubled its dividend.
The Wall Street megabanks also handsomely rewarded their CEOs with some of the biggest paydays since 2006. Five Wall Street banks, combined, paid their CEOs a total compensation of $126 million, the highest amount since before the financial crisis. Each chief of the banks--which includes Bank of America, J.P. Morgan, and Morgan Stanley--received an average $25.3 million for their work, and that was up 17 percent from 2016.
Mr. Speaker, we listen to Chairman Hensarling's stories. He shares a lot of stories with us that he receives from his constituents about problems they are having receiving car loans or a mortgage. And I agree, we should be doing more to expand access to credit for consumers; but what I do not agree with is the Republican argument that, if we only repealed bank regulations, then all of a sudden those individuals would receive the car loans and the mortgages that they currently cannot.
Banks are raking in money hand over fist, and they could use that money now to lend to creditworthy borrowers instead of paying millions of dollars in bonuses to their CEOs. Let's be clear about what is really going on. No amount of regulatory relief will cure Wall Street greed.
Mr. Speaker, I reserve the balance of my time.
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Mr. Speaker, this is absolutely amazing. We had the gentleman earlier who said this is not the time to talk about housing, and then we have the gentleman from Wisconsin who says, when the banks do well, our constituents do well.
The banks are making millions of dollars; the CEOs are making millions of dollars; and they have bank tellers and people who work who are not even making $15 an hour. We can't even get a minimum wage increase, Federal minimum wage increase for our constituents, and many of them are working in these megabanks where the CEOs are walking away every year with millions of dollars in pay.
So these statements, when banks do well, everybody does well, I wish my good friend would reexamine that statement because I think, when he thinks about it, he might want to retract it and take that back.
``Certainly, we have to do a better job ring-fencing, fire-walling-- whatever metaphor you want to use--between an insured depository institution and a noninsured investment bank.'' That is a quote from Chairman Jeb Hensarling, March 2013. That appeared in The Wall Street Journal.
And this is just what the Volcker rule does.
``If you're a bank and you want to operate like some nonbank entity like a hedge fund, then don't be a bank. Don't let banks use their customers' money to do anything other than traditional banking.'' Again, I repeat, that is what Speaker Paul Ryan said in May 2012 in a townhall meeting.
``I do support the Volcker rule. I think the concept of proprietary trading does not belong in banks with FDIC insurance.'' That is a quote from Treasury Secretary Steve Mnuchin, January 2017, during the Senate confirmation hearings.
Another quote: ``I think the Volcker rule is very important and it is good. I think the Volcker rule is good. Banks should not be a last resort to sell securities. Banks should not have prop desks buying them.''
That was Carl Icahn, the hedge fund manager and currently special adviser to President Trump on regulatory reform during a 2015 conference.
Another quote: ``Proprietary trading played a big role in manufacturing the CDOs and other instruments that were at the heart of the financial crisis. . . . If firms weren't able to buy up the parts of these deals that wouldn't sell . . . the game would have stopped a lot sooner.''
This is a quote by Michael Madden, a managing director of the investment firm BlackEagle Partners and a former Lehman executive.
We have more quotes. Here is one: ``The industry should be compartmentalized so as to limit the propagation of failures and also to preserve cultural boundaries.'' That is a quote by John Reed, the former Citigroup chairman, in a Senate testimony, February 2010.
Further quoting: ``A strong Volcker rule is one of the most important provisions to prevent `too big to fail' financial institutions, stop conflicts of interest, and support credit in our economy. . . . Failure to comply should be severely punished.'' And this is what Reed said in a letter to regulators, February 2012.
Again, in looking at all of these quotes, we find that there is one from former Democratic and Republican Secretaries of the Treasury W.
Michael Blumenthal, joined by Nicholas Brady, Paul O'Neill, George Schultz, and John Snow.
This is what they said: ``Banks benefiting from public support by means of access to the Federal Reserve and FDIC insurance should not engage in essentially speculative activity unrelated to essential bank services.'' Again, all of these gentlemen said this in a letter, reported in The Wall Street Journal, February 2010. This was a letter to the editor.
And let me just, again, refer to one of the greatest economists in this country and the former Chair of the FDIC, Paul Volcker. What did he say?
He said, in essence: The five banking regulatory authorities have now successfully responded to the provisions of the Dodd-Frank Act by setting out a comprehensive regulation restricting proprietary trading by commercial banks in the United States. . . . The agencies have dealt comprehensively with thousands of particular conceptual and practical questions raised by affected bankers, by legions of lobbyists, by other interested parties, and by the general public. . . . The result should help the process of restoring trust and confidence in commercial banking institutions. It is, after all, those institutions which benefit from explicit and implicit public support that we count on to provide a strong, safe, and effective financial system--Paul Volcker, December 2013.
``The Volcker rule will make it illegal for firms to use government- insured money to make speculative bets that threaten the entire financial system and demand a new era of accountability from CEOs who must sign off on their firms' practices. Our financial system will be safer, and the American people are more secure because we fought to include this protection in the law.'' That was President Obama, December 2013.
Mr. Speaker, with that, I will reserve the balance of my time.
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This is the third bill that the majority has put on the House floor this week that is a harmful giveaway to the big banks. I could just list you all of the deregulatory bills that they have been bringing forward, but, today, the bill we are considering, H.R. 4790, would threaten the Volcker rule, which prevents banks from gambling with taxpayer money. As we have discussed, the Volcker rule is a key component of Wall Street reform and has prevented risky, speculative behavior by Wall Street and made our economy safer. It must not be compromised.
It seems the Republicans have not learned the lessons of the financial crisis at all. They are working every day to reverse critical Dodd-Frank reforms and to reopen the door to risky and harmful practices that led our Nation to economic catastrophe, so I oppose this bill.
I do not want our Members to be tricked or fooled talking about community banks. This is not about community banks. This is about the megabanks. They always use the community banks to lead on some of these arguments so that people will think that they are doing something for community banks.
Mr. Speaker, I yield back the balance of my time.
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