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HEARING ON STRENGTHENING BANK REGULATIONS

Dodd: Our Job Here Is Not to Protect Regulators

August 4, 2009

Questions if Administration’s Plan Goes Far Enough to Protect Consumers
 
WASHINGTON – Today Banking Committee Chairman Chris Dodd (D-CT)  held a hearing on how banks should be regulated to best ensure their safety and soundness to protect their customers.
 
“Our job here is not to protect regulators; our job is to protect the people who count on us, on you, and a system to provide safety and soundness to banks and stability to the financial markets.  That is what this is all about,” Dodd told bank regulators testifying before the Committee.
 
Chairman Dodd went on to question the witnesses on whether the Administration’s plan did enough to protect consumers.
 
“The Administration has proposed the consolidation of the OCC and the OTS, but it leaves in place the three federal bank regulators.  My question is simply, putting the safety and soundness of the banking system first, is the Administration’s proposal really enough, or should we be listening to previous administrations and people who have sat in this chair that greater consolidation should be the next step?”
 
Sheila Bair, Chairman of the Federal Deposit Insurance Corporation; John Dugan, Comptroller of the Currency; Daniel Tarullo, of the Board of Governors of the Federal Reserve System; and John Bowman, Acting Director or the Office of Thrift Supervision testified at the hearing.
 
Testimony and webcast will be available after the hearing at:
 
 
Below is Dodd’s full opening statement as prepared for delivery.
 
“Good morning.  Thank you all for coming today.  This is the 24th hearing we have held this year on modernizing financial regulation.  I appreciate the willingness of our witnesses to come back again today, I know you all have a lot on your plates, and I appreciate the great interest and important contributions made by my fellow committee members.  Everyone is taking this very seriously.”
 
“Today we are taking a look at the important issue of how banks should be regulated to best ensure their safety and soundness to protect their customers.”
 
“In 1994, Federal Reserve Chairman Alan Greenspan testified to this committee that allowing banks to shop for charters from a variety of regulators would ensure that regulatory agencies did not become too strict or unreasonable.  He argued allowing companies to pick the regulator that provided them with the greatest advantages was good for business, and so regulatory consolidation was bad.”
 
“He was wrong.  Instead of a smarter, flexible structure that promoted a strong financial industry, regulators competed for business by loosening standards.  There was an all out race to the bottom.  This, coupled with a profusion of unregulated products and the irresponsible actions of unregulated companies resulted in an economic collapse that just barely avoided becoming a second Great Depression.”
 
“We could have seen this coming.  For decades, commissions and think tanks, Presidents and Banking Committee chairmen, Republicans and Democrats – all have recommended consolidating bank regulators.”
 
“Former Banking Committee Chairman Bill Proxmire called U.S. regulation the ‘most bizarre and tangled financial regulatory system in the world.’  Former FDIC Chairman William Seidman called it ‘complex, inefficient, outmoded and archaic.’”  
 
“As Chairman of this committee, I’ve presided over hearings where the sheer number of U.S. financial institution regulators meant there were too many witnesses to fit at this witness table.”
 
“Every time there is a financial crisis - say in the 1980s or the 1990s - there is a push to rationalize and consolidate banking regulation.  But entrenched interests and a lack of political will have always triumphed over reform.”
 
“This time our financial system has come to the verge of a collapse.   It is clear we need a change.  The case has never been stronger.  The de-centralized system has resulted in inefficiencies, redundancies, and worse - lax regulation, a lack of accountability, and a Wild West culture on Wall Street.”
 
“As unemployment continues to rise, millions struggle to hold onto their economic security, and Congress takes unprecedented steps to avert complete disaster, it should be clear to all of us that we are now paying a very high price for those shortcomings.”
 
“The Obama Administration has proposed establishing a new National Bank Supervisor from a combined OCC and OTS.   It would leave state bank supervision to the FDIC and the Federal Reserve.   It would strengthen the Fed’s regulation of bank holding companies.  It would eliminate the federal thrift charter, and subject industrial loan companies and special purpose banks to the restrictions of the Bank Holding Company Act.”
 
“I appreciate the Administration’s thoughtful proposal, but I wonder if it’s the right prescription.”
 
“Do we really need three federal agencies to regulate banks?”
 
“Should we really eliminate the charters of healthy businesses, or can we instead subject them to stricter scrutiny?”
 
“If we subject diverse charters to more rigorous standards, must we also force them to divest commercial affiliates?”
           
“But let me say this.  It seems that the lesson many have learned from their previous attempts to restore some sanity to our system is that regulators, as institutions, don’t want to cooperate.   Chairman Bill Seidman warned, ‘Do not bother to ask the regulators about it; their turf is their only message.’” 
 
“Let me be perfectly clear.  Our job here is not to protect regulators; our job is to protect the people who count on us, on you, and a system to provide safety and soundness to banks and stability to the financial markets.  That is what this is all about.”
 
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