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DODD: HOW DO WE PROTECT MAIN STREET FROM WALL STREET?

July 23, 2009

WASHINGTON – Today, Senate Banking Committee Chairman Chris Dodd (D-CT) held a hearing to ask top financial regulators how to create a framework to protect Americans from the giant risks that caused the current financial crisis.
 
“Wall Street’s failures have hit Main Streets across the country.  It will take years, perhaps decades, to undo damage that a stronger regulatory system would have prevented,” Dodd said.  “While many Americans understand why we had to take extraordinary measures this time, it doesn’t mean they aren’t angry, because they are.  It doesn’t mean they aren’t worried, they certainly are that.  And it doesn’t mean they don’t expect us to fix the problems that allowed this to happen.”
 
“How do we create the architecture for the 21st century to allow us to move forward with innovation and creativity and restore the credibility of safety and soundness that has been the hallmark of our financial services sector, but collapsed with the economic problems so many of our citizens are facing with joblessness, house foreclosures, retirement accounts being wiped out.”
 
“All of us want to figure out what works best… when you look back and see where the gaps have been, either 1) where there was no authority, or 2) where there was authority but it wasn’t being exercised, then how do we fill those gaps in a way that makes sense?”
 
Sheila Bair, Chairman, Federal Deposit Insurance Corporation, Mary Schapiro, Chairman, U.S. Securities and Exchange Commission and Daniel Tarullo, Member, Board of Governors of the Federal Reserve System, testified at the Banking Committee hearing on establishing a framework for systemic risk regulation.
 
A second panel of experts includes Alice Rivlin, Brookings Institution; Allan Meltzer, Tepper School of Business, Carnegie Mellon University; Vincent Reinhart, American Enterprise Institute; and  Paul Schott Stevens, President and CEO of Investment Company Institute
 
Read testimony, or watch the webcast:
 
Below is Dodd’s full opening statement as prepared for delivery.
           
“We have had some 40 hearings in this committee since January, not all of them on this subject matter, but the bulk of the hearings have been on how do we modernize our financial regulatory structure.”
 
“How do we address the problems that brought us to this point, but also how do we create the architecture for the 21st century to allow us to move forward with innovation and creativity and restore the credibility of safety and soundness that has been the hallmark of our financial services sector, but collapsed with the economic problems so many of our citizens are facing with joblessness, house foreclosures, retirement accounts being wiped out.”
 
“Systemic risk is going to be an important factor in all of this.” 
 
“I can’t begin to express my gratitude to my fellow members here, because unlike other matters that the Congress is dealing with, my sense is this is not one that has any ideology to it.  All of us want to figure out what works best, what makes sense for us here.  Not that we are going to solve every future problem - I think we make a mistake if we make promises we cannot deliver on - but when you look back and see where the gaps have been, either 1) where there was no authority, or 2) where there was authority but it wasn’t being exercised, then how do we fill those gaps in a way that makes sense.”
 
“And I particularly want to thank Senator Shelby, former Chairman of this Committee, the Ranking Member now.  We’ve had a lot of conversations together.  We don’t have a bill ready, there has been a lot of talk, but I get a sense that we all share a lot of common views about this, and that is a good place to begin.  It doesn’t mean we are going to agree on every answer, but I sense the overwhelming majority of us here are committed to that goal of establishing of what makes for a sound and solid regulatory process.”
 
“The economic crisis introduced a new term to our national vocabulary – systemic risk - not words we use much, not a word I recall using.  It is the idea that in an interconnected global economy, it’s easy for some people’s problems to become everybody’s problems.  That is what systemic risk is.”
 
            “The failures that destroyed some of our nation’s most prestigious financial institutions also devastated the economic security of millions of working Americans who did nothing wrong and never heard of these institutions that collapsed and put them at great risk– their jobs, homes, retirement security, gone in a flash because of Wall Street greed in some cases and regulatory neglect in others.”
 
            “After years of focusing on short term profits while ignoring long term risks, a number of companies - giants of the financial industry - found themselves in very serious trouble.”
 
            “Some, as we know, tragically failed.  Some were sold under duress.  And an untold number only survived because of government intervention: loans, guarantees, and direct injections of capital.”
 
            “Taxpayers had no choice but to step in, that is my strong view, assuming billions of dollars of risk, and saving companies because our system wasn’t set up to withstand their failure.  Their efforts saved our economy from catastrophe, but real damage remains as we all are painfully aware.”
 
“Investors, who lost billions, were scared to invest.  Credit markets dried up.  With no one willing to make loans, businesses couldn’t make payrolls, employees were laid off, and families couldn’t get mortgages or loans to buy an automobile even.”
 
“Wall Street’s failures have hit Main Streets across the country.  It will take years, perhaps decades, to undo damage that a stronger regulatory system would have prevented.”
           
            “While many Americans understand why we had to take extraordinary measures this time, it doesn’t mean they aren’t angry, because they are.  It doesn’t mean they aren’t worried, they certainly are that.  And it doesn’t mean they don’t expect us to fix the problems that allowed this to happen.”
 
            “First and foremost, we need someone looking at the whole economy for the next big problem, with the authority to do something about it.”
 
            “The Administration has a bold proposal to modernize our financial regulatory system.  It would give the Federal Reserve new authority to identify, regulate, and supervise all financial companies considered to be systemically important. “
 
“It would establish a council of regulators to serve in a solely advisory role.  And it would provide a framework for companies to fail, if they must fail, in a way that does not jeopardize the entire financial system.”
 
            “It’s a thoughtful proposal.  But the devil, as we all know, is in the details and I expect changes to be made in this proposal.”
 
“I share my colleagues’ concerns about giving the Fed additional authority to regulate systemic risk.  The Fed hasn’t done a perfect job, to put it mildly, with the responsibilities it already has.  This new authority could compromise the independence the Fed needs to carry out effective monetary policy.  Additionally, systemic risk regulation involves too broad a range of issues for any one regulator to oversee.”
 
“And so, I am especially interested to hear from our witnesses this morning on your ideas on how we might get this right.  Many of you have suggested a council with real authority that would effectively use the combined knowledge of all of the regulatory agencies.”
 
“As President Obama has said, when we rebuild our economy, we must ensure that its foundation rests on rock, not on sand.  Today, we continue our work to lay the cornerstones of that foundation – strong, smart, effective regulation that protects working families without hindering the growth, innovation, and creativity that has been the hallmark of our financial services sector.”
 
 
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