July 08, 2015

Sen. Brown Opening Statement at Banking Committee's Hearing on the Financial Stability Board

WASHINGTON, D.C. — U.S. Sen. Sherrod Brown (D-OH) – ranking member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs – released the following opening statement, as prepared for delivery, at today’s hearing entitled “The Role of the Financial Stability Board in the U.S. Regulatory Framework.”

Brown’s remarks, as prepared for delivery, follow.

Senator Sherrod Brown - Opening Statement
Hearing: “The Role of the Financial Stability Board in the U.S. Regulatory Framework.
July 8, 2015

 Thank you Chairman Shelby, and welcome to the witnesses for being here today. 

This month marks five years since the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and over seven years since the worst crisis since the Great Depression began to spread through the global financial system. 

As the months and years pass, we cannot forget the damage that was done because we are still living with the after effects. 

We continue to see the damage done to Americans’ finances and their lives, and we must make sure that financial reform continues. 

That reform shouldn’t stop at the edge of our shores.

The financial crisis showed us and the world how interconnected our financial system had become and how fragile and fragmented the regulatory system was. 

In 2009, the leaders of the G20 nations agreed to and outlined an agenda to guide international financial reforms, end ”Too Big to Fail,” improve capital standards, and make markets more resilient and transparent.  The Financial Stability Board, or FSB, was formed and international reform initiatives were launched. 

We have heard over and over in this room the importance of international cooperation and the need for improved global standards.

In September 2009, SEC Commissioner Kathleen Casey testified before a Banking Subcommittee that:

“International cooperation is critical for the effectiveness of financial regulatory reform efforts.

“The G20 banking statement correctly recognizes that due to the mobility of capital in today’s world of interconnected financial markets, activity can easily shift from one market to another.

“Only collective regulatory action can be effective in fully addressing cross-border activity in our global financial system.”

In March 2012, Treasury Under Secretary for International Affairs Lael Brainard appeared before this Committee and said:

“We have also secured agreement internationally to strengthen liquidity standards and limit leverage. We have identified the globally systemically important banks, agreed to a capital surcharge for these institutions, and developed a comprehensive set of enhanced prudential measures to address risks from globally active financial institutions.

“However, there is much more work that needs to be done. We must remain vigilant against attempts to soften the national application of new capital, liquidity, and leverage rules.”

Those statements only begin to explain the need for international coordination in financial regulation, which is not a new concept.

The Basel Committee dates back to the mid-1970s, and the Financial Stability Forum, the predecessor to the FSB, was formed in 1999. 

Cross-border cooperation is important because just in recent memory we have seen several domestic and international financial crisis.

From the savings and loan crisis in the 1980s and 90s, the bailout of Mexico in the mid-1990s, the Asian financial crisis in 1997, which led to the failure and bailout of the hedge fund Long Term Capital Management, through to the financial crisis and the default and uncertainty facing Greece today, we know that another crisis will happen and that it will affect more than any single nation.

It is the desire to prevent that next crisis that should drive us to broad global efforts and higher regulatory standards, so that no market falls behind and allows unchecked risk to accumulate.

The world cannot afford another AIG or Lehman.

To make sure it doesn’t have to, the United States has led global reforms, quickly passing comprehensive Wall Street Reform in 2010, pushing for higher capital requirements, improving derivatives regulation, and building out resolution mechanisms. 

But, we can, and need to, do more. 

Risks don’t just build up overseas, they can build up here in the shadows.

Yesterday, the IMF released its 5-year financial sector assessment of the U.S., in which it identified several areas of so-called “shadow banking” where we still have more work to do.

We need to address gaps in regulation and oversight, ensure that regulators communicate globally, and expose areas where excessive risk can develop.

Given that all the systemic risk questions have not been answered and regulations are still being considered and implemented, it is clear our work is not done. 

I hope today’s witnesses will highlight the importance of international coordination to a stable financial system.  It would be a shame if instead criticisms of a non-binding, international coordinating body were used to weaken or stop the kind of safeguards needed to prevent the next AIG.

Thank you, Mr. Chairman.