July 23, 2015

Sen. Brown Opening Statement at Banking Committee's Hearing on U.S. Bank Holding Companies

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 titled, “Measuring the Systemic Importance of U.S. Bank Holding Companies.”

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

Senator Sherrod Brown - Opening Statement
Hearing: “Measuring the Systemic Importance of U.S. Bank Holding Companies”

July 23, 2015

Thank you, Chairman Shelby, for holding this hearing. It was almost one year ago that I held a similar subcommittee hearing, at which Professor DeYoung testified. I thank him and all of our witnesses for being here today.

Tuesday was the fifth anniversary of the day that the President signed the Wall Street Reform Act into law.

Our country was emerging from a devastating economic crisis; one caused in large part by financial institutions that ran wild and regulators that did nothing about it.

Some Americans have recovered.  But it is a slow process, and every household’s story is different.

Wall Street reform has stabilized and strengthened our economy, despite dire Republican predictions.

The financial crisis was caused by poor mortgage underwriting, lax capital and liquidity standards, inadequate risk management, and regulators that failed to challenge the banks that they supervised.

Congress, through the Dodd-Frank Act, crafted a reasonable response, directing agencies to institute standards for capital, liquidity, risk management, and stress testing to lower the likelihood and the costs of large bank holding company failures.

It called for heightened rules for banks over $50 billion in total assets, 31 of the largest bank holding companies.  It also urged regulators not to take a one-size-fits all approach, allowing for tailoring based upon a variety of factors so that a $50 billion bank would not be treated the same way as a $2 trillion bank.

For example, on Tuesday the Fed finalized a rule to increase the capital standards that apply to the eight largest U.S. banks.

Many of the powers in Title I of Dodd-Frank were not new – but after regulators failed to use their authority leading up to the crisis, Congress wanted to ensure that regulators use their authorities in ways that have teeth.

The new rules were not meant to cover only “Systemically Important” or “Too Big to Fail” banks.  In fact, these words aren’t even used in the law.

Enhanced prudential standards are intended to respond to the last crisis, but also to prevent the next crisis.  

We all agree that a regional bank is not systemic in the same way that a money center bank is. 

The failure of one regional bank, assuming it is following a traditional model, will not threaten the entire system.

But as we have heard in past hearings, the failure of a single large institution can create systemic risk, but so can multiple failures of similar small or mid-sized institutions, as we saw in 2008.

Systemic importance is also about the importance of an institution to homeowners and small businesses in the economic footprint where that bank operates.

Congress should only open up Dodd-Frank if it can identify real problems affecting actual institutions, and it should be careful to do so without undermining safety and soundness or consumer protection.

That is why I am concerned by Title II of the bill that was passed by this committee along party lines in May.

Secretary Lew said that this proposal is “designed to gut the heart of Dodd-Frank.”

So if the goal is to have something signed into law, I think we need to take a more modest approach.

I would appreciate hearing today which specific prudential standards are inappropriate for regional banks and why, and whether the concerns being raised stem from implementing regulations or from the law or itself.

We need to strike the right balance – the Fed should use its authority to tailor its regulations to the institutions and activities that it thinks present the most risk, but it should not become complacent and take its eyes off of all possible sources of risk.

Thank you again to the witnesses for being here today, and I look forward to your testimony.