WASHINGTON, D.C. – U.S. Sen. Sherrod Brown (D-OH) – ranking member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs – received letters from current and former Wall Street watchdog officials raising concerns on S. 2155 and how the legislation may harm financial stability and consumer protection.  Links and excerpts from each of the letters is provided below.

Former Fed Chair Paul Volcker: 

  • On Section 401:  “an increase to $250 billion would go too far.  It would have the effect of substantially reducing the regulation of 25 of the 38 largest banks to which [enhanced prudential] standards now apply, notably including the operating subsidiaries of several large foreign banks.”
  • On Section 402:  “[this section reduces] leverage capital requirements for at least two of the most systemically important custodial banks by as much as 30 percent at a time when they should be building their capital cushion.  It also would put Congress under pressure to expand the exclusion.”
  • On Section 203:  “I know from my long experience in banking and savings and loan regulation that plausibly small loopholes can be ‘gamed’ and exploited with unfortunate consequences.”


Former Fed Governor and Deputy Treasury Secretary Sarah Bloom Raskin:

  • On Section 401:  “I don’t see how this effort to undercut regulation for large bank actors has anything to do with providing relief for community banks. This proposal is just injecting a lot more danger into the financial system.”
  • On Section 401:  “the bill removes necessary guardrails that were installed to reduce the chances of foreign megabanks drawing on U.S. bailout funds when their home country regulators fail to assure that they are conducting their US business safely and soundly.”
  • On Section 401:  “S. 2155 essentially prevents the Federal Reserve from being able to do any meaningful ‘reach back’ [to regulate banks over $100 billion in assets]… statutory hurdles are unlikely to be surmounted in time to keep a potential crisis from catching fire and burning up critical parts of the financial system.”


Former FDIC Chair Sheila Bair:

  • On Section 402:  “[Section 402] would significantly weaken a key constraint on the use of excessive leverage by the largest financial institutions in the US.  In these times of market volatility, I would strongly urge the Senate to reject this provision as imprudent and short-sighted.  Now is the time we should be bolstering bank capital levels, not chipping away at them.”
  • On Section 109:  “[Section 109] would exempt many more lenders from escrow requirements for high-cost mortgage loans.  Mandatory escrow of insurance and taxes for borrowers with troubled credit histories provide both consumer and safety and soundness benefits.   Borrowers who have difficulty managing their finances may well have trouble making these essential payments on their own, forcing them to turn to high cost lenders to cover those costs when they come due, or worse, defaulting on their mortgage obligations.  Moreover, administrative costs of escrow requirements are not high and certainly less than costs associated with default.  To both protect consumers from the loss of their homes as well as the FDIC-insured banks from mortgage defaults, I would encourage Congress to leave current escrow requirements alone.”


Former Counselor to the Treasury Secretary Antonio Weiss:

  • On Section 401:  “the Federal Reserve has already included significant tailoring in its adoption of enhanced prudential requirements….automatically removing all bank holding companies with less than $250 billion of assets from these requirements is potentially dangerous.  Banks of this size received approximately $65 billion in taxpayer funds in the financial crisis, and included such notable near failures as Countrywide and GMAC.  Though Section 401 of S.2155 would allow the Federal Reserve to determine that individual bank holding companies with greater than $100 billion in assets pose risks that warrant enhanced supervision, importantly, the risks posed by these institutions prior to the crisis were not apparent to regulators ex ante.”


Former Deputy Governor of the Bank of England Paul Tucker on behalf of the Systemic Risk Council:

  • On Section 401:  “we believe the proposed replacement threshold of $250bn to be too high. It effectively assumes that banking distress will harm the economy only when massive banks fail. History, in the US and elsewhere, shows that to be untrue. When multiple medium-sized banks fail, the damage to the economy can be severe…the SRC opposes the proposal that stress-testing of significant intermediaries be moved away from an annual cycle. Conditions in the economy and financial markets shift too much too quickly for that to be safe or prudent.”
  • On Section 402:  “The central feature of the leverage ratio is that it makes no distinction between assets and exposures. The Bill proposes that policy depart from that simple system.”


FDIC Vice Chair Thomas Hoenig:

  • Section 402:  “the incorporation in Section 402 of changes to the supplemental leverage ratio, which only applies to large, internationally-active banking organizations, appears incongruent with a bill that is designed to relieve burden for community and regional banks. For that reason, the exclusion of central bank reserves from the calculation of the supplemental leverage ratio seems out of place as it would allow custody banks, some of the most systemically important banks in the United States, to greatly reduce capital.”
  • Section 203:  “while the section is well intentioned, I am concerned that if S. 2155 were enacted with Section 203 as it is currently written, it would severely weaken the safeguards that were designed to protect depositors and taxpayers.”