Thursday, June 10, 2010

Kanjo Opening Remarks

from the inbox:

JUNE 10, 2010


Mr. Chairman, today we begin our long-anticipated conference to harmonize the House and Senate versions of Wall Street regulatory reform. Feelings of anger, frustration and rage justifiably hang over this proceeding because of the recklessness of financial whiz kids, the greediness of Wall Street bankers, and the short-sightedness of our economic regulators. Congress must respond by fundamentally changing the way that Wall Street operates.

While excess consumption may have fueled the fire, the blaze that became a devastating financial inferno began with Wall Street’s exotic financial instruments and excessive risk-taking. Because financial titans pushed our entire economic system to a catastrophic cliff, Congress had to take drastic action. Our work ensured that average Americans could continue to use their ATM cards and small businesses on Main Street could continue to pay their workers.

Critics invoke the word bailout to disparage the emergency action taken in late 2008. But the stabilization of an economic system really amounts to a rescue, not a bailout. Fair-minded experts agree that the Troubled Asset Relief Program and other similarly targeted initiatives have saved the American way of life. And while we have not yet recouped all of the money loaned by TARP, we have recovered much of the funds. We also have solid plans for collecting the rest.

Once we pulled back from this economic precipice, Congress immediately began working on a plan to comprehensively reform the rules of the road for bankers, securities brokers, insurers and hedge fund advisers, and to empower regulators with new tools. In this regard, our most important task in the weeks ahead will be to end the too-big-to-fail problem.

My too-big-to-fail amendment in the House vests regulators with the authority to prevent financial institutions -- those whose demise threatens the entire system because they are too large, interconnected, concentrated, or risky -- from ever reaching such a precarious position. For this mechanism to work properly, the simple majority vote by the Council in the House’s bill must prevail over the Senate’s multi-layered and complex two-thirds majority vote requirements.

The enactment of a strong Volcker rule will also help to end the problem of too big to fail. Its provisions to bar proprietary trading and to prohibit investments in hedge funds are a surgical version of the Glass-Steagall Act. Together, they will essentially resurrect the barrier between commercial and investment banking that resulted in a stable financial system for 70 years. And while we will still allow the mixing of banking and insurance activities, my Federal Insurance Office will effectively monitor this sector for potential risks going forward.

Some have myopically criticized this package because it does not abolish Fannie Mae and Freddie Mac. However, by reforming the securitization process, risk retention requirements, and rating agency accountability, this bill lays the foundation for our upcoming work to address the future of these two institutions and, more broadly, the entire housing finance system.

In the House, I also worked to better protect investors and to greatly strengthen the powers of the Securities and Exchange Commission. While the Senate bill contains some of my reforms, the final package must include many more. For example, we must have the strongest possible fiduciary standard for every financial intermediary providing personalized advice.

Under Chairman Schapiro’s leadership, the Commission’s performance has improved markedly. But we must consider how to fundamentally alter securities regulation by including in the final bill my comprehensive external study to thoroughly examine the deficiencies of our current system and to identify what further reforms it must undergo.

Finally, we must significantly increase the accountability of rating agencies, whose overly optimistic assessments about the quality of financial garbage aided and abetted the financial crisis. Imposing greater liability on rating agencies will change the way they behave and ensure that they effectively perform their functions as market gatekeepers going forward.

In closing, this conference marks the culmination of a long, thoughtful series of hearings, markups and floor debates. As we work toward a bicameral -- and hopefully bipartisan -- consensus, we must aim to make the final Wall Street reform package as strong as possible.

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