Restoring American Financial Stability Act of 2010

Floor Speech

BREAK IN TRANSCRIPT

Ms. COLLINS. Mr. President, I rise today to speak on behalf of an amendment I filed to direct regulators to impose tough risk- and size-based capital standards on financial institutions as they grow in size or engage in risky business practices. I am pleased to offer this amendment on behalf of Senator Shaheen and myself.

Our amendment is aimed at addressing the too-big-to-fail problem at the root of the current crisis by requiring financial firms to have adequate amounts of cash and other liquid assets to survive financial crises without turning to the taxpayers for a bailout. It is critical to our ability to avoid future crises that this amendment be adopted.

I am very pleased that the FDIC Chairman, Sheila Bair, has strongly endorsed our amendment. In a recent letter to me, Chairman Bair called this proposal:

..... a critical element to ensure that U.S. financial institutions hold sufficient capital to absorb losses during future periods of financial stress. With new resolution authority, taxpayers will no longer bail out large financial institutions. This makes it imperative that they have sufficient capital to stand on their own in times of adversity.

Chairman Bair also noted the importance of ensuring that bank holding companies and large nonbanks are held to the same capital and risk standards that are applied to insured banks in order to protect against excessive leverage that could destabilize our financial system. As Chairman Bair put it, ``The amendment accomplishes this goal simply and directly.''

It makes no sense that capital and risk standards for our Nation's largest financial institutions are more lenient than those that apply to small depository banks, when the failure of larger institutions is much more likely to have a broad economic impact. Yet that is currently the case. We must give the regulators the tools to end and the direction to address this problem. If financial firms, including bank holding companies, were required to meet stronger capital standards, they would be far less likely to fail and to trigger the kind of cascade of economic harm we have been experiencing since 2008.

The Collins-Shaheen amendment directs Federal regulators to impose minimum leverage and risk-based capital requirements on banks, bank holding companies, and those nonbank financial firms identified by the new Financial Stability Oversight Council for supervision by the Federal Reserve. Neither current law nor the bill before us requires regulators to adjust capital standards for risk factors as financial institutions grow in size and engage in risky practices.

The current Senate financial regulatory reform bill also does not require regulators to apply minimum capital and risk measures across financial institutions, as would be required by our amendment. As the FDIC Chairman has noted about the current financial crisis, ``Far from being a source of strength to banks ..... holding companies became a source of weakness, requiring financial support.''

She went on to caution that ``they should not be allowed to operate under consolidated capital requirements that are numerically lower and qualitatively less stringent than those that apply to insured banks.''

Our amendment would tighten the standards that would apply to larger financial institutions by requiring them to meet, at a minimum, the standards that already apply to small banks. This only makes sense. If a small bank fails, the FDIC can close down that bank over a weekend, allow it to operate, avoid a run on the bank, and deal with it in an orderly way. But if a large bank holding company fails, it is so interconnected in our economy that it sets off a cascade of dire economic consequences. That was the point that the chairman of the Banking Committee was just making. We live in such an interconnected global financial system now.

So, from my point of view, a view that is shared by the Chairman of the FDIC, it is only prudent for us to empower the regulators to impose, at a minimum, the same kinds of capital and leverage requirements and restrictions that apply to small insured banks.

I ask unanimous consent that the letter from Chairman Bair be printed in the Record immediately following my remarks.

The ACTING PRESIDENT pro tempore. Without objection, it is so ordered.

(See exhibit 1.)

Ms. COLLINS. I had the privilege of serving the people of Maine as a financial regulator for 5 years about 20 years ago. This is an issue about which I care deeply and am committed to helping forge a solution to, so that never again can the problems and the excesses of Wall Street have such dire consequences for Main Street.

Increasing capital requirements as firms grow provides a disincentive to their becoming too big to fail in the first place, and ensures an adequate capital cushion in difficult economic times. Our amendment directs the regulators to establish capital standards that take size and risk into account.

Our amendment strengthens the economic foundation of large financial firms, increases oversight and accountability, and helps prevent the excesses that contributed to a deep recession that has cost millions of Americans their jobs.

Let me conclude by thanking the chairman of the Banking Committee and the ranking member of the Banking Committee and members such as the Presiding Officer and Senator Corker and Senator Gregg for their work on this very complex issue. More than a year ago I introduced a financial regulatory reform bill. I had the pleasure of discussing the bill with the chairman of the Banking Committee, and I am pleased with much of what is in his bill at this point in the debate.

I hope we can continue to make further changes, such as the amendment I have proposed with Senator Shaheen, but I do want to salute the members of the Banking Committee. I know this is enormously complex and, at times, a thankless task. But it is so important. In fact, I argued that we should have dealt with financial regulatory reform last year. I think it is that important to the future of our economy. We realize we were operating with regulatory
black holes that allowed, for example, trillions of dollars of credit default swaps to develop with no one having oversight or visibility as far as their impact on the financial market.

They were not regulated as insurance, even though I personally believe they act as an insurance product, nor were they regulated by the banking regulators. The creation of the Council of Regulators in this bill has not received a great deal of discussion, but I think it is one of the most important provisions in this reform, and it is one that has widespread bipartisan support. It was the key feature of the bill I introduced last year. I have discussed it with the Presiding Officer as well.

I personally still believe we need an independent chairman of that council rather than the Secretary of the Treasury. I think we need to broaden the makeup of the council to include some State regulators so that the insurance area is covered, and State securities administrators, since they play such a critical role. I think those State regulators should be brought on to the council in a nonvoting capacity given the constitutional issues. But that council is absolutely critical. I think we should add the regulator for credit unions to that council. What we want is a council with as broad an overview as possible, bringing together everyone who has a role so we do not have these regulatory gaps, these black holes developing in the future, and so that we can bring the collective wisdom of these officials to the table.

So that is an example of a provision of this bill that I think is extraordinarily important. But perhaps because it does have widespread support, it has not generated much discussion on this floor. So I wanted to mention that and salute the committee for what I think is a provision that is going to make a real difference in preventing the kinds of problems we saw that triggered the recession of 2008.

I also want to commend Senator Levin and Senator Coburn for their work on the Permanent Subcommittee on Investigations, the Senate's premiere investigative subcommittee which is part of the Homeland Security Governmental Affairs Committee which Senator Lieberman and I have the privilege of leading. They have given us great insight into the role of everyone from sloppy mortgage brokers and bankers who threw underwriting standards out the window and made loans that never should have been made to people who could not possibly repay them.

They have looked at the role of credit rating agencies that also did not perform in the way we would like. They have looked at the role of investment banks such as Goldman Sachs. We need to take the lessons we have learned, the great depth of knowledge in this body, and work together in a bipartisan way. That is what we have been doing in the last couple of weeks.

In closing, let me just say, we have made a lot of progress. I am confident we can get there. Let's not pull the plug on this debate prematurely. There are a lot of amendments that are good-faith amendments that are still out there. Let's work through them and continue to strengthen and improve this bill which has so many excellent features to it.

At the end of the day, I hope we can vote on a bill that will command the support of 70 Members of this body. I would like it to be all 100, but let's aim for 70. In doing so we can demonstrate to the American people that we can come together and work on an issue that really matters--matters to our economy, to the American homeowners, to our small businesses, to anyone who has a retirement account. It matters to every American.

I yield the floor.

BREAK IN TRANSCRIPT

Source