WALL STREET REFORM AND CONSUMER PROTECTION ACT--CONFERENCE REPORT; Congressional Record Vol. 156, No. 105
(Senate - July 15, 2010)

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   WALL STREET REFORM AND CONSUMER PROTECTION ACT--CONFERENCE REPORT

  The ACTING PRESIDENT pro tempore. Under the previous order, the 
Senate will resume consideration of the conference report to company 
H.R. 4173, which the clerk will report.
  The assistant legislative clerk read as follows:

       Conference report to accompany H.R. 4173, to provide for 
     financial regulatory reform, to protect consumers and 
     investors, to enhance Federal understanding of insurance 
     issues, to regulate the over-the-counter derivatives markets, 
     and for other purposes.

  The ACTING PRESIDENT pro tempore. Under the previous order, the time 
until 11 a.m. shall be equally divided and controlled by the Senator 
from Connecticut, Mr. Dodd, and the Senator from Alabama, Mr. Shelby, 
or their designees, with the final 20 minutes divided equally between 
the two managers and the two leaders.
  The Senator from Hawaii.
  Mr. AKAKA. Madam President, I strongly support the Dodd-Frank 
conference report. I commend the chairman for all of his work to 
address so many issues vitally important to working families. I thank 
my friend from Connecticut for working closely with me to ensure this 
legislation will educate, protect, and empower consumers and investors.
  An Office of Financial Education within the Consumer Financial 
Protection Bureau is created by the legislation. The office is tasked 
with developing and implementing initiatives to educate and empower 
consumers. A strategy to improve financial literacy among consumers, 
that includes measurable goals and benchmarks, must be developed. The 
administrator of the bureau will serve as vice-chairman of the 
Financial Literacy and Education Commission to ensure meaningful 
participation in Federal efforts intended to help educate, protect, and 
empower working families.
  The conference report also addresses investor literacy. A financial 
literacy study must be conducted by the Securities and Exchange 
Commission, SEC. The SEC will be required to develop an investor 
financial literacy strategy intended to bring about positive behavioral 
change among investors.
  Essential consumer and investor protections for working families are 
included in the conference report. A regulatory structure that will 
have a greater emphasis on investor and consumer protections is 
established. Regulators failed to protect consumers and that 
contributed significantly to the financial crisis. Prospective 
homebuyers were steered into mortgage products that had risks and costs 
that they could not understand or afford. The Consumer Financial 
Protection Bureau will be empowered to restrict predatory financial 
products and unfair business practices in order to prevent unscrupulous 
financial services providers from taking advantage of consumers.
  I take great pride in my contributions to the investor protection 
portion of the legislation. Section 915 will strengthen the ability of 
the Securities and Exchange Commission to better represent the 
interests of retail investors by creating an investor advocate within 
the SEC. The investor advocate is tasked with assisting retail 
investors to resolve significant problems with the SEC or the self-
regulatory organization, SROs. The investor advocate's mission includes 
identifying areas where investors would benefit from changes in 
Commission or SRO policies and problems that investors have with 
financial service providers and investment products. The investor 
advocate will recommend policy changes to the Commission and Congress 
on behalf of investors.
  The investor advocate is precisely the kind of external check, with 
independent reporting lines and independently determined compensation, 
that cannot be provided within the current structure of the SEC. It is 
not that the SEC does not advocate on behalf of investors, it is that 
it does not have a structure by which any meaningful self-evaluation 
can be conducted. This would be an entirely new function. The investor 
advocate would help to ensure that the interests of retail investors 
are built into rulemaking proposals from the outset and that agency 
priorities reflect the issues confronting investors. The investor 
advocate will act as the chief ombudsman for retail investors and 
increase transparency and accountability at the SEC. The investor 
advocate will be best equipped to act in response to feedback from 
investors and potentially avoid situations such as the mishandling of 
information that could have exposed ponzi schemes much earlier. We also 
worked with our colleagues in the other Chamber to include an ombudsman 
that will be appointed by and report to the investor advocate.
  I also worked to include in the legislation clarified authority for 
the SEC to effectively require disclosures prior to the sale of 
financial products and services. Working families rely on their mutual 
fund investments and other financial products to pay for their 
children's education, prepare for retirement, and be better able to 
attain other financial goals. This provision will ensure that working 
families have the relevant and useful information they need when they 
are making decisions that determine their financial future.
  Unfortunately, too many investors do not know the difference between 
a broker and an investment advisor. Even fewer are likely to know that 
their broker has no obligation to act in their best interest. 
Investment advisors currently have fiduciary obligations. However, 
brokers must only meet a suitability standard that fails to 
sufficiently protect investors.
  In a complicated financial marketplace, for investors in which 
revenue sharing agreements and commissions can vary significantly for 
similar products, we must ensure that all investment professionals that 
offer personalized investment advice have a fiduciary duty imposed on 
them.
  In 2005, I first introduced legislation that would have imposed a 
fiduciary duty on brokers. I knew then that action was necessary. I am 
proud that a vital investor protection was also included in the 
conference report that will ensure that a fiduciary duty is imposed on 
brokers when giving personalized investment advice. This change is 
necessary because it will ensure that all financial professionals, 
whether they are an investment advisor or a broker, have the same duty 
to act in the best interests of their clients. Investors must be able 
to trust that their broker is acting in their best interest and we must 
not allow brokers to push higher commission products that may be 
inappropriate for a particular client. I appreciate all of the efforts 
of Chairman Frank, Senator Menendez, and Senator Johnson for all of 
their efforts on this important new investor protection.
  This legislation also includes landmark consumer protections for 
remittance transactions. Working families often send substantial 
portions of their earnings to family members living abroad. In Hawaii, 
many of my constituents remit money to their family members living in 
the Philippines. Consumers can have serious problems with their 
remittance transactions, such as being overcharged or not having their 
money reach the intended recipient. Remittances are not currently 
regulated under Federal law, and State

[[Page S5871]]

laws provide inadequate consumer protections.
  The conference report modifies the Electronic Fund Transfer Act to 
establish consumer protections for remittances. It will require simple 
disclosures about the cost of sending remittances to be provided to the 
consumer prior to and after the transaction. A complaint and error 
resolution process for remittance transactions would be established. I 
appreciate all of the efforts of the chairman, Representative 
Gutierrez, and the Department of the Treasury for working with me on 
this important piece of the bill for immigrant communities.
  This legislation also includes essential economic empowerment 
opportunities for working families. Title XII, Improving Access to 
Mainstream Financial Institutions, is the most important economic 
empowerment provision in the bill. I appreciate the assistance provided 
by my friend from Wisconsin, Senator Kohl in helping me put this title 
together. I appreciate the support and contributions made to this title 
provided Senators Schumer, Brown, Merkley, and Menendez.
  I grew up in a family that did not have a bank account. My parents 
kept their money in a box divided into different sections so that money 
could be separated for various purposes. Church donations were kept in 
one part. Money for clothes was kept in another and there was a portion 
of the box reserved for food expenses. When there was no longer any 
money in the food section, we did not eat. Obviously, money in the box 
was not earning interest. It was not secure.
  I know personally the challenges that are presented to families 
unable to save or borrow when they need small loans to pay for 
unexpected expenses. Unexpected medical expenses or a car repair bill 
may require small loans to help working families overcome these 
obstacles.
  Mainstream financial institutions are a vital component to economic 
empowerment. Unbanked or underbanked families need access to credit 
unions and banks and they need to be able to borrow on affordable 
terms. Banks and credit unions provide alternatives to high-cost and 
often predatory fringe financial service providers such as check 
cashers and payday lenders. Unfortunately, approximately one in four 
families are unbanked or underbanked.
  Many of the unbanked and underbanked are low and moderate-income 
families that cannot afford to have their earnings diminished by 
reliance on these high-cost and often predatory financial services. 
Unbanked families are unable to save securely for education expenses, a 
down payment on a first home, or other future financial needs. 
Underbanked consumers rely on nontraditional forms of credit that often 
have extraordinarily high interest rates. Regular checking accounts may 
be too expensive for some consumers unable to maintain minimum balances 
or afford monthly fees. Poor credit histories may also limit their 
ability to open accounts. Cultural differences or language barriers 
also present challenges that can hinder the ability of consumers to 
access financial services. I also want to clarify that in section 1204, 
small dollar-value loans and financial education and counseling 
relating to conducting transactions in and managing accounts are only 
examples of, and not limitations on, eligible activities.
  More must be done to promote product development, outreach, and 
financial education opportunities intended to empower consumers. Title 
XII authorizes programs intended to assist low and moderate-income 
individuals establish bank or credit union accounts and encourage 
greater use of mainstream financial services. It will also encourage 
the development of small, affordable loans as an alternative to more 
costly payday loans.
  There is a great need for working families to have access to 
affordable small loans. This legislation would encourage banks and 
credit unions to develop consumer friendly payday loan alternatives. 
Consumers who apply for these loans would be provided with financial 
literacy and educational opportunities.
  The National Credit Union Administration has provided assistance to 
develop these small consumer-friendly loans. Windward Community Credit 
Union in Hawaii implemented a very successful program for the U.S. 
Marines and other community members in need of affordable short term 
credit. More working families need access to affordable small loans. 
This program will encourage mainstream financial service providers to 
develop affordable small loan products.
  I thank the Banking Committee staff for all of their extraordinary 
work, including Levon Bagramian, Julie Chon, Brian Filipowich, Amy 
Friend, Catherine Galicia, Lynsey Graham Rea, Matthew Green, Marc 
Jarsulic, Mark Jickling, Deborah Katz, Jonathan Miller, Misha Mintz-
Roth, Dean Shahinian, Ed Silverman, and Charles Yi.
  I also express my appreciation for all of the work done by the 
legislative assistants of members of the Committee, including Laura 
Swanson, Kara Stein, Jonah Crane, Ellen Chube, Michael Passante, Lee 
Drutman, Graham Steele, Alison O'Donnell, Hilary Swab, Harry Stein, 
Karolina Arias, Nathan Steinwald, Andy Green, Brian Appel, and Matt 
Pippin.
  In conclusion, this bill will improve the lives of working families 
in our country because it will educate, protect, and empower consumers 
and investors.
  The ACTING PRESIDENT pro tempore. The Senator from Maryland.
  Mr. CARDIN. Madam President, I take this time to urge my colleagues 
to vote for cloture on the Dodd-Frank Wall Street Reform and Consumer 
Protection Act and to vote for final passage.
  First, I congratulate Senator Dodd for the leadership he has shown in 
marshaling this legislation through some very difficult challenges in 
the Congress, getting it through the Senate floor, working out the 
differences between the House and Senate, so we now are on the verge of 
passing the most significant reform of Wall Street in many years.
  This bill corrects a regulatory structure that today allows reckless 
gambling on Wall Street; that creates too big to fail, where government 
bailouts are necessary to keep companies afloat because there are no 
other options available to our regulators. It ends reckless gambling on 
Wall Street. It ends the need for government bailouts of institutions 
that are too big to fail. It provides for strong consumer protection--
protection for many forms of lending but, most importantly, the 
residential mortgage market.
  We saw in this financial crisis that even responsible consumers 
suffered at the hands of aggressive lenders with dubious intentions. 
This legislation will create a consumer bureau that will end those 
types of practices, that will be on the side of the consumer, that is 
independent, so the consumer is represented in the financial structure.
  I want to highlight some provisions that were included in this 
legislation I worked on with our colleagues to get included in the 
bill. I am very grateful to Senator Dodd, the leadership of the Banking 
Committee, and our representatives in conference who were able to 
include provisions that I think add to the importance of this bill.
  The first provision I want to talk about is a provision I worked on 
with Senator Enzi and Senator Brownback that will make permanent the 
federally insured deposit limits from $100,000 to $250,000. We did that 
recently in order to encourage more deposits, to help our economy, to 
provide capital for businesses. This limit included in this bill is now 
made permanent at $250,000.
  Insured deposits have been the stabilizing force for our Nation's 
banking system for the past 75 years. They promote public confidence in 
our banking system and prevent bank runs. They are particularly 
important to community banks. I know many of us talk about what we can 
do to help our small businesses, how can we free up more credit to get 
small businesses the loans they need in order to create the jobs that 
are needed for our economy. We all know community banks are the most 
stable source of funds for investments in our communities and small 
businesses.
  Community banks rely more on insured deposits than large banks. Madam 
President, 85 percent to 90 percent of the funds community banks have 
are included in insured deposits. So this amendment that will make 
permanent the $250,000 limit will help provide a more steady source of 
funds for

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our community banks which will allow them to be able to invest in our 
communities.
  Another provision that is included in this conference report is one I 
worked on with my colleague from Maryland, Senator Mikulski, dealing 
with the enhanced supervision for nonbank financial companies. What we 
are talking about are mutual funds and their advisers, to make sure 
they are not inadvertently subjected to unworkable standards. Here we 
are talking about promoting funds necessary for venture capital and 
equity investments in our communities, to make sure there is a 
difference between the type of activities of mutual fund operators who 
rely primarily on risk investment and those that are primarily involved 
in insured deposits. I appreciate the conference committee clarifying 
that provision in the conference report, which Senator Mikulski and I 
encouraged them to do.
  Another provision I want to talk about very briefly is one I worked 
on with Senator Grassley dealing with whistleblower protections at 
nationally recognized statistical rating organizations, NRSROs as they 
are known. But I think most people in our country know them as credit 
rating agencies. These are companies such as Moody's and Standard & 
Poor's. There are about 10 in our country that are supposed to do 
independent credit ratings for securities.
  As I am sure many people are now aware, they played a significant 
role in the unrealistic confidence in securities during our recent 
economic downturn.
  We want to make sure our credit rating agencies, in fact, carry out 
the responsibilities they are supposed to carry out as independent 
evaluators. But competition, pressure, and inherent conflicts have made 
that uncertain. The whistleblower protections that are extended in this 
legislation will allow employees to come forward with information 
without fear of retribution by their employer. It is a very important 
provision, and I am glad it was included in the final legislation.
  Lastly, let me talk about the extractive industries transparency 
initiative, an amendment Senator Lugar and I worked very hard on, that 
is included in the final conference report. I have spoken on the Senate 
floor previously about this provision, and I particularly thank Senator 
Leahy for his leadership in the conference on this issue and Senator 
Dodd for his help in getting it included in the final conference 
report.
  Oil, gas, and mining companies registered with the U.S. Securities 
and Exchange Commission will be required under this legislation to 
disclose their payments to governments for access to oil, gas, or 
minerals. Many of these oil companies or gas companies or mineral 
companies operate in countries that are autocratic, unstable, or both, 
and they have to make payments to those countries in order to be able 
to get access to those mineral rights. This legislation--the amendment 
that is included in this bill--will require public disclosure of those 
payments.
  Why is that so important? And why was it included in the final 
conference report? First, transparency encourages and provides for more 
stable governments. We rely on these energy sources or mineral supplies 
in countries that are of questionable stability.
  If this disclosure will help make those countries more stable, it 
provides security for the United States in their supply source, whether 
it is an energy or mineral supply source. So this amendment that is 
included in the conference report will help with U.S. energy security.
  Secondly, investors have a right to know. If you are going to invest 
in an oil company, you have a right to know where they are doing 
business, where they are making payments. I would think this is 
information that may affect your decision as to whether you want to 
take this risk in investing in that company. So this amendment provides 
greater disclosure for investors to be able to make intelligent 
decisions as to whether to invest in an oil or gas or mineral company.
  Third, as we know, with the lack of transparency, the payments become 
a source of corruption for government officials in many of these 
resource-wealthy countries. It is interesting; it is known as the 
``resource curse,'' not the ``resource blessing'' in many countries 
around the world. It is interesting that some of our most wealthy 
mineral countries are the poorest countries as far as their people in 
the world. The citizens of these countries are entitled to have their 
mineral wealth be used to elevate their personal status. By giving the 
citizens the information about how payments are made to their country, 
they have a much better chance to hold their government officials 
accountable.
  So we not only are protecting investors and helping in energy 
security, we are helping to alleviate poverty internationally by 
allowing the people of the countries that have mineral wealth to hold 
their officials accountable, to use those payments to help the people 
of that nation.
  This proposal has been endorsed by the G8, the International Monetary 
Fund, and the World Bank. With the passage of the conference report, 
the United States will be the leader internationally on extractive 
industries transparency, and I think that is a proud moment not only 
for the Senate but for our Nation.
  This is a good bill for many reasons. It is a well-organized, 
commonsense regulatory structure to protect our Nation from another 
financial crisis, with strong investor and consumer protection, placing 
limits on institutions deemed too big to fail, protecting not only 
investors and consumers but also taxpayers.
  Over the past 30 years, our regulatory framework did not keep pace 
with financial innovation. It was particularly impotent with regard to 
oversight of the so-called shadow banking system, which evolved in 
large part simply to avoid regulation.
  Decreased regulation led to irresponsible behavior by financiers, 
investors, lenders, and consumers. Collectively, we failed to mitigate 
risk and we ignored established principles of finance--prudence, 
solvency, and accountability. We can shift risk, but we cannot make it 
magically disappear. Bubbles do burst eventually.
  Everyone played a part in the crisis. Together, we suffer the 
consequences. No man is an island; we are all connected.
  Risky mortgage lending--practices including no-doc or stated income 
loans--no down payments, and subprime lending led to unprecedented 
foreclosures.
  Consumers securing mortgages beyond their means and horrible 
predatory lending practices permeated our culture.
  Even responsible consumers suffered at the hands of aggressive 
lenders with dubious intentions.
  The mortgage lending system was seriously flawed. America got hit by 
a tidal wave of foreclosures. Declining home values affect everyone in 
the community.
  And problems in mortgage lending became exacerbated when these bad 
mortgages were packaged into securities and sliced and diced and sold 
to investors with AAA credit ratings.
  Careful underwriting went out the window because the loan originators 
sold the notes as fast as they could write them.
  The bill the Senate is considering goes a long way to restore the 
order we need in the financial markets, improve oversight of the 
mortgage industry, and address the numerous other issues that led to 
the worst financial crisis since the Great Depression. This bill holds 
Wall Street more accountable and provides the strongest consumer 
protections ever for American families and small businesses.
  I know there are partisan disagreements on some parts of this 
legislation and it was a challenge to get to this point, but the 
chairman and ranking member of the Banking Committee did an outstanding 
job on this bill and are to be commended for their effort. This is a 
landmark bill, like Sarbanes-Oxley and the original Securities and 
Exchange Commission Act. The lesson we had to learn, again, is that 
business--especially big business--cannot regulate itself adequately. I 
think H.R. 4173 strikes the right balance in reining in the financial 
services industry without being unduly burdensome.
  I would like to review some of the provisions I worked on that have 
been included in the bill.
  As I have said, Senators Enzi and Brownback joined me in proposing 
changes to the deposit insurance program. The Independent Community 
Bankers of America, ICBA, the American Bankers Association, ABA, and

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the National Credit Union Association, NCUA, all supported our 
amendment--now found in section 335 of the bill--to make the temporary 
increase in the federally insured deposit limit from $100,000 to 
$250,000--a permanent increase. An increase in the Federal Deposit 
Insurance Corporation, FDIC, and National Credit Union Share Insurance 
Fund, NCUSIF, limit is significant because deposit insurance has been 
the stabilizing force of our Nation's banking system for 75 years.
  By raising the limit permanently, we provide safe and secure 
depositories for small businesses and individuals alike. FDIC insurance 
prevents bank runs and has been proven to increase public confidence in 
the system. FDIC insurance limits are especially significant to 
community banks, which rely on deposits much more heavily than larger 
banks. On average, smaller banks derive 85 percent to 90 percent of 
their funding from deposits. Ensuring a stable funding source for 
community banks helps these institutions to continue providing 
crucially important capital to the small businesses whose growth is at 
the heart of our economic recovery.
  And as I mentioned earlier, during Senate consideration of the bill, 
I offered an amendment with Senator Mikulski to ensure that mutual 
funds and their advisers are not inadvertently subjected to unworkable 
standards in the unlikely event the Financial Stability Oversight 
Council designates them as systemically risky. In section 115 of the 
bill, the new council is given the flexibility to consider capital 
structure, riskiness, complexity, financial activities, size, and other 
factors when determining heightened regulatory standards. This is 
important for addressing the unique characteristics of companies that 
are structured differently from banks and bank holding companies.
  Further, I am gratified the House and Senate conferees saw fit to 
retain an amendment, amendment No. 3840, Senator Grassley and I offered 
to the bill to extend whistleblower protections to employees of 
nationally recognized statistical rating organizations, NRSROs. The 
provision is section 922(b) of the bill.
  NRSROs are the companies, such as Moody's and Standard & Poor's, 
which issue credit ratings that the U.S. Securities and Exchange 
Commission, SEC, permits other financial firms to use for certain 
regulatory purposes. There are 10 NRSROs at present, including some 
privately held firms.
  The NRSROs played a large role--by overestimating the safety of 
residential mortgage-backed securities, RMBS, and collateralized debt 
obligations, CDOs--in creating the housing bubble and making it bigger. 
Then, by making tardy but massive simultaneous downgrades of these 
securities, they contributed to the collapse of the subprime secondary 
market and the ``fire sale'' of assets, exacerbating the financial 
crisis.
  A Permanent Subcommittee on Investigations, PSI, hearing made it 
quite clear that competitive pressures and inherent conflicts of 
interest affected the objectivity of the ratings issued by the NRSROs.
  Since NRSRO ratings are used for various regulatory purposes, such as 
determining net capital requirements and the soundness of insurance 
company reserves, it makes sense to extend whistleblower protections to 
employees who might come across malfeasance at a credit rating agency.
  There are many reasons for the massive failure of the NRSROs. The 
Wall Street reform bill contains several provisions to improve SEC and 
congressional oversight of the NRSROs and how they function. Extending 
whistleblower status to the employees of these firms enhances the 
provisions already in the underlying bill.
  As I have also said, my distinguished colleague, Senator Lugar, and I 
worked particularly hard on the energy security through transparency 
provision in this bill, which is section 1504--Disclosure of Payments 
by Resource Extraction Issuers. I am especially grateful to Senator 
Leahy, who championed this provision in the conference committee.
  The geography and nature of the oil, gas, and mining industry is such 
that companies often have to operate in countries that are autocratic, 
unstable, or both. Investors need to know the full extent of a 
company's exposure when it operates in countries where it is subject to 
expropriation, political and social turmoil, and reputational risks.
  In Nigeria, for example, American companies have had to take oil 
fields offline because of rebel activity and instability in the Niger 
Delta. Last year, Nigeria was producing almost a million barrels of oil 
less than it was able to produce because of conflict and instability. 
With so much production offline, American oil companies such as Chevron 
and Exxon have laid off workers and paid higher production costs 
because of added security.
  This bipartisan amendment goes a long way to achieving transparency 
in this critical sector by requiring all foreign and domestic companies 
registered with the U.S. Securities and Exchange Commission, SEC, to 
include in their annual report to the SEC how much they pay each 
government for access to its oil, gas, and minerals. This amendment is 
a critical part of the increased transparency and good governance that 
we are striving to achieve in the financial industry.
  Our amendment is vitally important. Transparency helps create more 
stable governments, which in turn allows U.S. companies to operate more 
freely--and on a level playing field--in markets that are otherwise too 
risky or unstable.
  Let me point out three key results we expect from this provision:
  No. 1, enhancing U.S. energy security. The reliability of oil and gas 
supplies is undermined by the instability caused when local populations 
do not receive the benefit of their resource exports. Enhancing 
openness in revenue flows allows for greater public scrutiny of how 
revenues are used. Increased transparency can help create more stable, 
democratic governments, as well as more reliable energy suppliers.
  No. 2, strengthening energy markets. The extractive industries are 
capital-intensive and dependent on long-term stability to generate 
favorable returns. Leading energy companies recognize that more 
transparent investment climates are better for their bottom lines.
  No. 3, helping to alleviate poverty. Too many resource-rich countries 
that should be well off are home to many of the world's poor instead. 
This is a phenomenon known as the ``resource curse.'' Oil, gas 
reserves, and minerals don't automatically confer wealth on the people 
who live in countries where those resources are located. Many resource-
rich countries rank at the bottom of most measures of human 
development, making them a breeding ground for poverty and instability. 
Revenue transparency will help the citizens of resource-rich countries 
hold their governments more accountable and ensure that their country's 
natural resource wealth is used wisely for the benefit of the entire 
nation and for future generations.
  The wave of the future is transparency, and these principles of 
transparency have been endorsed by the G8, the International Monetary 
Fund, the World Bank, and a number of regional development banks. It is 
clear to the financial leaders of the world that transparency in 
natural resource development is vital to holding the rulers in these 
countries accountable for the needs of their citizens and preventing 
them from simply building up their personal offshore bank accounts. I 
am proud to stand here today and say that the United States is now the 
leader in creating a new standard for revenue transparency in the 
extractive industries.
  These are some of the provisions I worked on, but they are a small 
part of the overall bill, which is very strong.
  Forty years ago, conservative economist Milton Friedman wrote a New 
York Times Magazine article entitled ``The Social Responsibility of 
Business is to Increase its Profits.'' In this article, quoting from 
his earlier book ``Capitalism and Freedom,'' from 1962, he concluded:

       There is one and only one social responsibility of 
     business--to use its resources and engage in activities 
     designed to increase its profits so long as it stays within 
     the rules of the game, which is to say, engages in open and 
     free competition without deception or fraud.

  Even this minimalist position suggests that markets need rules. And 
yet we embarked on a 30-year path to deregulate financial services, to 
ease the rules, and remove the watchdogs. We have learned a bitter 
lesson that markets are not self-correcting--at least

[[Page S5874]]

not without catastrophic consequences. Millions of Americans have lost 
their jobs, their savings, their homes, and their retirement security. 
Businesses have been wiped out. We have gone from easy credit to no 
credit.
  Now that the financial hurricane has wreaked its devastation, it is 
time to rebuild.
  H.R. 4173 is part of that process. The bill creates well-organized, 
commonsense regulatory structures to protect our Nation from another 
financial crisis. Chairman Dodd and Chairman Frank have produced a bill 
that addresses the feasibility of our reliance on credit rating 
agencies, our appetite for systemic risk, and the need to limit the 
regulatory burden on our small institutions. They have produced a bill 
that provides strong investor and consumer protections, encourages 
whistleblowers, reduces interchange fees for small businesses, and 
places limits on institutions deemed too big to fail. I know that 
Maryland banks and investment companies appreciate the attention paid 
in this bill to their concerns regarding bank and thrift oversight, 
systemic risk regulation, and the effects of the mortgage crisis.
  While Members of Congress may not agree on every aspect of this bill, 
it is worthy of our support. Indeed, given the stakes, it is imperative 
that we pass H.R. 4173.
  I urge my colleagues to vote for cloture and support passage.
  Madam President, I yield the floor.
  The ACTING PRESIDENT pro tempore. The Senator from Georgia.
  Mr. CHAMBLISS. Madam President, I rise today in strong opposition to 
H.R. 4173. I think it is interesting to note we have had a number of 
speakers who are proponents of this legislation come forward--just as 
my good friend from Maryland just did--and say we are going to be the 
leader, the United States is going to be the leader in the financial 
world market with these changes.
  Well, the fact is, other countries that have strong financial markets 
have said publicly just the opposite. What I am afraid we are setting 
ourselves up for, and what I talked about a lot during the course of 
the debate on the Senate floor relative to this bill, is that what we 
are going to wind up doing is we are going to be driving jobs and 
business overseas with this massive piece of legislation that truly 
does not address the problem.
  There is nothing in these 2,300 pages that deals with the primary 
catalyst of the market instability in our economy--the bailout 
behemoths, Fannie Mae and Freddie Mac. The bill simply ignores the 
devastating impact these two entities continue to have not only on our 
capital markets but also on our Nation's deficit, already demanding 
over $145 billion in taxpayer assistance, and with no end in sight as 
to what it is ultimately going to cost the taxpayers of this country.
  The newly created consumer protection bureau is an affirmation that 
the proponents of the legislation have acknowledged government failures 
were a significant cause of our economic turmoil. But they still 
believe bigger government is the solution going forward, and despite 
failure after failure among various regulatory agencies, a new agency 
is the answer to these shortcomings, and this time it is going to be 
different.
  Instead of addressing the problems of the consumer protections in 
place under our current regulatory structure, this new oversight agency 
is an added layer of bureaucracy with the authority to examine and 
enforce new regulations for not only all mortgage-related businesses, 
but also small mom-and-pop businesses on Main Street such as payday 
lenders, check cashers, and other nonfinancial firms. These types of 
entities were clearly not the cause of the economic crisis, yet they 
will now be subject to the same regulations as the large financial 
institutions on Wall Street. This is simply another example of the 
majority party's preference for a one-size-fits-all regulatory 
structure, stifling economic growth.
  Having participated in the conference committee, I unfortunately 
witnessed firsthand the complete disregard for addressing the real 
issues at hand. As ranking member of the Agriculture Committee, I have 
spent a great deal of time understanding the over-the-counter 
derivatives market--its complexities, and its legitimate utility. I 
have found that both Republicans and Democrats generally agree on the 
major issues relating to derivatives regulation. We all generally agree 
there needs to be greater transparency, registration, more clearing, 
and compliance with a whole host of business conduct and efficient 
market operation regulations. This is important, because it is a 180-
degree shift away from current law where over-the-counter swaps are 
essentially unregulated today.
  Within this general agreement that swaps need to go from unregulated 
to fully regulated, we have had disagreements about who should be 
required to clear their transactions and how best to require swaps to 
be transacted and reported. These disagreements are significant because 
they involve real burdens and duties which will result in real costs to 
businesses and consumers. I wish to make sure our new regulations are 
targeted to serve a useful purpose. Unfortunately, this legislation 
will enable regulators to impose restrictions on businesses that had 
absolutely nothing to do with creating the financial crisis. Every 
industry in the country uses derivatives to manage their business risks 
and many of them will now be forced to clear their derivative 
transactions. This seems simple enough, until you realize that clearing 
does not make risk within the financial system disappear. Risk is 
simply transferred from the individual counterparties to the 
clearinghouses, a service provided at considerable expense in the form 
of margin posted to the clearinghouse. So this bill will not eliminate 
risk, but it simply transfers risk from one place to another and 
imposes costs on market participants who had nothing to do with 
creating the financial crisis. I truly fear that consumers will 
ultimately pay the price.
  For example, this legislation would force the farm credit system 
institutions to run their interest rate swaps through a clearinghouse 
which will result in additional costs in the form of higher interest 
rates to their customers without doing anything to lessen the systemic 
risk. Let me be clear as to who this will ultimately affect. It is very 
clear that our farmers and ranchers, our electric cooperatives, and our 
ethanol facilities which seek financing from these institutions will 
bear this burden.
  Institutions such as Cobank will be forced to clear their swaps and 
execute them on a trading facility which will impose significant new 
costs and result in higher rates for their customer, or, worse, 
discourage them from managing their risk which will again result in 
higher costs for their borrowers. And why? Because this legislation 
broadly applies regulation, treating all financial institutions the 
same. Cobank and Goldman Sachs are not the same and should not be 
regulated in the same manner. Cobank should have the option to clear 
their swaps, not be mandated to do so.
  While the conference report provides an exemption for some businesses 
from this derivative clearing mandate, it also imposes new margin 
requirements on derivative dealers for these same uncleared 
transactions. Who will likely pay for these new margin requirements in 
the form of higher fees? Again, it is pretty clear the public and 
private companies across the Nation that had nothing to do with the 
financial crisis and that are simply seeking to minimize risk will bear 
this burden. The entire point of exempting some of them from the 
clearing mandate was to ensure that they do not bear the burden of 
increased margin costs, but this language would indirectly subject 
these businesses to the expense of margins imposed on their dealer 
counterparties--counterparties that will be forced to recoup this cost 
in the form of fees, and businesses will be forced to pass their costs 
on to consumers.
  I encourage all Members of this body to look at yesterday's Wall 
Street Journal. There is a front-page story on derivatives. When we 
come to the floor and start debating derivatives, most people's eyes 
glaze over because it is complex and an issue that is very difficult to 
understand. But in that article it explains the simplicity that the 
derivatives world imparts itself in. The article goes through a process 
of a farmer in Nebraska and his use of derivatives; then his ultimate 
purchaser of his product--the rancher--and how that rancher uses 
derivatives to eliminate risk and hopefully guarantee a profit in his 
business. Then it describes

[[Page S5875]]

how the slaughterhouse takes the product from the livestock operator, 
the market operator, and uses derivatives in their business; and then 
ultimately the guy who owns the trucking company and how he uses 
derivatives. It is very clear in this article that these guys' lives 
are going to change from a business perspective. They are not going to 
be able to use derivatives in the way they used them before. They had 
nothing to do with the financial crisis that developed in this country.
  Also related to derivatives were considerable improvements made to 
the so-called ``swap desk push out'' provision. I commend the chairman 
for his work on that. Banks would be able to continue to engage in 
interest rate and foreign currency swaps which is essential to the 
business of banks. However, I remain concerned that forcing swap dealer 
banks to spin off their commodity trading will hurt those utilities and 
airlines wishing to hedge their energy risks in the immediate future. 
They will be forced to establish new credit ratings and standings with 
these affiliates rather than take advantage of their longstanding 
relationship with their current bank. I fail to understand why forcing 
these entities to spin off any aspect of their swap business is 
necessary.
  I wholeheartedly support efforts to make the swaps market more 
transparent. It needs to be. I believe this will be accomplished once 
regulators have access to the data which has to date been completely 
unavailable to them. The public will benefit from knowing who is 
participating in these markets, and we will finally have the data we 
need to make informed policy decisions related to derivatives.
  Our economy needs more opportunities for all businesses to grow and 
prosper. Time and again, it is the small- and medium-sized businesses 
that create the lion's share of jobs after a major economic recession. 
We need to foster and incubate these small- and medium-sized businesses 
right now and not hamper them. We need to ensure they are able to 
access capital and manage their risk through the use of derivatives. 
Right now, there are a lot of these small- and medium-sized companies 
that are ready to expand but cannot get adequate access to capital 
because lenders are saying it is too risky and regulators won't allow 
these lenders to help.
  So I believe there is a need to respond to what went wrong in our 
financial system and I support doing so in a responsible way that will 
continue to allow Main Street businesses to manage their risk 
appropriately, hold those responsible for this mess accountable, and 
not create huge new government bureaucracies. Unfortunately, this 
legislation falls short of these goals.
  I am pleased the chairman of the Banking Committee is here, because I 
do want to say publicly--and I have told him this privately and I will 
continue to say it--that he had a very difficult job, and while we 
disagreed on a lot of major issues, he was always open for discussion. 
He allowed participation on the floor as well as discussions off the 
floor, and for that I thank him. He knows that I obviously cannot vote 
for this bill, but he has proven himself to be a very valued Member of 
the Senate by the way he has conducted himself throughout this whole 
process, and for that I thank him.
  I yield the floor.
  Mr. DODD. Madam President, before my colleague leaves the floor, let 
me thank him as well. Of course, hope always springs eternal. The vote 
hasn't occurred yet, so we never know. We might get his vote yet.
  I don't serve on the Agriculture Committee with him. Senator 
Chambliss was a very valued member of this conference. Obviously, a lot 
of work took place in the Agriculture Committee dealing with areas of 
the bill that he has spent several minutes talking about. He raises 
very good points. I would be the last person to suggest as a coauthor 
of the bill that we have crafted the perfect piece of legislation. As 
he points out, these are highly complicated areas. One of the reasons 
we tried not to write a series of regulations far beyond the competency 
of those of us in this Chamber is because it is complicated. Obviously, 
we have delegated the ultimate responsibility that we now have, which 
is to watch, the oversight, to the regulatory community, to make sure 
they do this right.
  I pointed out yesterday, and he has pointed out again today, when we 
get into a situation such as this crisis, certain words become 
pejorative, and ``derivatives'' unfortunately has become that, and it 
shouldn't. These are very critical components for capital formation, 
job growth, and wealth in our country. Hedging against risk is 
absolutely essential. So they are vitally important elements in our 
economy. I hope people, when they hear the word ``derivative'' being 
spoken won't assume this is somehow a bad idea. One almost gets the 
sense that people feel that way. I don't at all.
  I look forward in the coming weeks and months, as regulators begin to 
work with this bill if, in fact, it passes, that we will do that. A lot 
of the record has been established in this area, and through no small 
measure due to the Senator from Georgia, and I thank him for his work 
as well.
  Madam President, I yield the floor.
  Madam President, I note the absence of a quorum, and I ask that the 
time be equally divided on both sides.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.
  The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. SHELBY. Madam President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.
  Mr. SHELBY. Madam President, I rise today to offer some remarks on 
the Dodd-Frank regulation conference report, which is now before the 
Senate.
  Nearly 2 years ago, the financial crisis exposed massive deficiencies 
in the structure and culture of our financial regulatory system. Years 
of technological advances, product development, and the advent of 
global capital markets rendered the system ill-suited to achieve its 
mission in the modern economy. Decades of insulation from 
accountability distracted regulators from focusing on that mission. 
Instead of acting to preserve safe and sound markets, the regulators 
primarily became focused on expanding the scope of their bureaucratic 
reach.
  After the crisis, which cost trillions of dollars and millions of 
jobs, it was clear that significant reform was necessary. Despite broad 
agreement on the need for reform, the majority decided it would rather 
move forward with a partisan bill. The result is the 2,300-page 
legislative monster before us that expands the scope and the power of 
ineffective bureaucracies. It creates vast new bureaucracies with 
little accountability and seriously undermines the competitiveness of 
the American economy.
  Unfortunately, the bill does very little to make our financial system 
safer. Therefore, I will oppose the Dodd-Frank bill and urge my 
colleagues to do the same.
  This was not a preordained outcome; it is the direct result of 
decisions made by the Obama administration. Had they sincerely wanted 
to produce a bipartisan bill, I have no doubt we could have crafted a 
strong bill that would garner 80 or more votes in the Senate. If the 
American people haven't noticed by now, that is not how things work 
under the Democratic rule.
  Unfortunately, the partisan manner in which this bill was constructed 
is not its greatest shortcoming. One would have assumed that the scope 
of the crisis--trillions of dollars lost and millions of jobs 
eliminated--would have compelled the Banking Committee to spend the 
time necessary to thoroughly examine the crisis and develop the best 
possible legislation in response. Unfortunately, such an assumption 
would be entirely unfounded. The Banking Committee never produced a 
single report on or conducted an investigation into any aspect of the 
financial crisis.
  In contrast, during the Great Depression, the Banking Committee set 
up an entire subcommittee to examine what regulatory reforms were 
needed. The Pecora Commission, as it came to be known, interviewed, 
under oath, the big actors on Wall Street and produced a multivolume 
report.
  Unfortunately, this time around, the Democratic-run committee gave 
Wall Street executives a pass, I believe. There were no investigations, 
no depositions, and no subpoenas. In fact, Chairman Dodd, my friend and 
colleague, never called on the likes of

[[Page S5876]]

Robert Rubin and Lloyd Blankfein to testify before the Banking 
Committee. Not a single individual from AIG's financial products 
division was questioned by the committee or its staff. Although 
Congress did establish the Financial Crisis Inquiry Commission to do 
the work that the majority party, I believe, refused to do, the 
Commission's work will not be completed until the end of this year.
  Most amazingly, the Banking Committee didn't even hold a single 
hearing on the final bill before its markup. The committee never took 
the time to receive public testimony or survey experts about the likely 
outcomes the legislation would produce. We know the majority heard from 
Wall Street lobbyists, government regulators, and liberal activists, 
but they clearly decided they did not want the American people to have 
a chance to understand and comment on the bill before us today before 
it was enacted. The question is, Why? The majority knows that this bill 
is a job killer and will saddle Americans with billions of dollars in 
hidden taxes and fees. Allowing the public to weigh in on this bill 
would have spelled the end of the Democratic version of reform. I 
believe we owed more to those who lost their jobs, their homes, and 
their life savings. I believe this truly was a missed opportunity.
  The difference between what we needed to do, what we could have done, 
and what the majority has chosen to do is considerable. I will speak on 
this.
  Congress could have focused this legislation on financial stability. 
It could have utilized the findings of the Financial Crisis Inquiry 
Commission. Instead, the Democratic majority chose to adopt legislative 
language penned by Federal regulators in search of expanded turf. They 
chose to legislate for the political favor of community organizing 
groups and liberal activists seeking expansive new bureaucracies that 
they could leverage for their own political advantage. The result is an 
activist bill that has little to do with the recent or any crisis and a 
lot to do with expanding the government to satisfy special interests.
  Congress could have written a bill to address the problem of too big 
to fail once and for all. In fact, the Shelby-Dodd amendment began to 
address this problem right here on the floor. Unfortunately, the 
Democrats once again overreached at the eleventh hour and undermined 
the seriousness of our effort by emphasizing social activism over 
financial stability. Democrats insisted that the overall financial 
stability mission of the Financial Stability Oversight Council was less 
important than the political needs of certain preferred constituencies. 
This dangerous mixing of social activism and financial stability 
follows the exact same model that led us to the crisis in the first 
place; that is, private enterprise co-opted through political mandates 
to achieve social goals. Fannie and Freddie proved this combination can 
be highly destructive.
  Congress could have written legislation to address key issues known 
to have played a key role in the recent crisis. On the government-
sponsored enterprises, Fannie and Freddie, the bill is silent, aside 
from a mere study. On the triparty repo market, the bill is silent. On 
runs in money markets, the bill is silent. On the reliance of market 
participants on short-term commercial paper funding, the bill is 
silent. On maturity transformations that allowed the shadow banking 
system to effectively create money out of AAA-rated securities, thereby 
making the system much more vulnerable, the bill is silent. On the 
financial system's overall vulnerability to liquidity crises, the bill 
again is silent. We know with certainty that all of these factors--none 
of which is addressed in the bill--were integral to the recent 
financial crisis. While we don't want to write legislation that only 
deals with the last crisis, we do want to enact a law that addresses 
what we know were systemic problems. This bill fails to do so.
  Congress could have written a bill to streamline regulation and 
eliminate the gaps that firms exploit in a race to the regulatory 
bottom. This bill does the opposite by making our financial regulatory 
system even more complex. We will still have the Fed, FDIC, SEC, CFTC, 
OCC, and the remainder of the regulatory alphabet soup. In fact, most 
of the existing regulators that so recently failed us have been given 
expanded power and scope. This bill will also add new letters to the 
already-confused soup, such as the CFPB and the OFR. In addition to 
increased regulatory complexity, there will be new special activist 
offices within each regulator for almost every imaginable special 
interest.
  Congress could have set up reasonable new research capabilities in 
its new Stability Oversight Council to complement financial research 
performed by the Federal Reserve and others. Instead, the Democrats 
decided to establish the Office of Financial Research with an 
unconstrained director and a focus on broad information collecting and 
processing.
  I believe this office will not only fail to detect systemic threats 
in the asset price bubbles in the future, it will threaten civil 
liberties and the privacy of Americans, waste billions of dollars of 
taxpayer resources, and lull markets into the false belief that this 
new government power will protect the financial system from risky 
trades.
  Congress could have been transparent in identifying the bill's fiscal 
effects and costs. Instead, the majority wrote a bill that hijacks 
taxpayer resources but hides that fact from public view. Just as the 
administration refuses to acknowledge trillions of dollars of 
contingent taxpayer liabilities residing with Fannie and Freddie, this 
bill refuses to provide Americans with a transparent view of the costs 
of the new multibillion-dollar consumer protection bureaucracy.
  According to the report on the bill offered by the majority, the 
consumer bureaucracy's budget is ``paid for by the Federal Reserve 
System.'' Make no mistake, ``paid for by the Fed'' means paid for 
ultimately by the taxpayers.
  Taxpayers will be on the hook for billions of dollars of unchecked, 
unencumbered, and unappropriated spending financed by the inflationary 
money printing authority of the Federal Reserve which will be hidden 
from the American people in the arcane Federal budget.
  Congress could have also used this legislative opportunity to begin 
the process of reforming the failed mortgage giants Fannie and Freddie, 
whose ever growing bailouts have no upper limit. When it became clear 
that this was not the intention of the Democrats, Republicans sought to 
address the current and worsening conditions of the GSEs.
  We suggested establishing taxpayer protections, such as portfolio 
caps, on the mortgage giants. We recommended making the cost of Freddie 
and Fannie bailouts transparent to the public; that is, to the 
taxpayer. We offered initial steps toward the inevitable unwinding of 
these failed institutions. Yet at every turn, the Democratic majority 
blocked Republican efforts to establish at least a foundation for 
reform.
  The Democratic-preferred approach in this bill to reforming the 
mortgage giants is a study. Let me repeat that notion. In order to 
address a bailout that has already cost American taxpayers roughly $150 
billion to date, with unlimited future taxpayer exposure, the Democrats 
propose a study. It does not take a study to determine that $150 
billion in unlimited loss exposure needs to be addressed immediately--
now.
  Congress could have focused on securities market practices that were 
known to have contributed to systemic risks in our financial system. 
Instead, Democrats overreached once again.
  For example, the bill gives the Securities and Exchange Commission, 
which has failed to carry out its existing mandates, a new systemic 
risk mandate to oversee advisers to hedge funds and private equity 
funds. Yet no one contends private funds were a cause of the recent 
crisis or that the demise of any private fund during the crisis 
resulted in a systemwide shock.
  Congress could have acted to curtail Wall Street's speculative 
excesses and enhance Main Street's access to credit. But instead, in 
this bill large financial firms on Wall Street seem to have benefited, 
judging by the behavior of the stock prices, while the legislation 
almost surely will increase uncertainties and costs for Main Street and 
America's job creators.
  The actual provisions in the bill will benefit big Wall Street 
institutions because they substantially increase the amount and cost of 
financial regulation. Only large financial institutions will have the 
resources to navigate all

[[Page S5877]]

of the new laws and regulations that this legislation will generate. As 
a result, this bill, disproportionately will hurt small and medium-
sized banks which had nothing to do with the crisis.
  While the largest financial institutions will get special regulation 
under this bill, the unintended result will be lower funding costs for 
these firms. That will benefit the big banks and hurt the small banks. 
Therefore, this bill will result in higher fees, less choice, and fewer 
opportunities to responsibly obtain credit for blameless consumers.
  Moreover, this bill raises taxes which, as we all know, are 
ultimately borne by consumers. Make no mistake, when Wall Street writes 
a check to pay its higher taxes, the ones who end up paying those taxes 
are American consumers and workers.
  Congress could have written legislation for consumer protection that 
respects both American consumers and the need for safety and soundness 
in our financial system.
  Instead, the Dodd-Frank bill was basically constructed by architects 
in the Treasury Department who have a certain condescension for 
American consumers and their choices.
  The ultimate goal is to substitute the judgment of a benevolent 
bureaucrat for that of the American consumer, thereby controlling 
consumer behavior without regard for the safety and soundness of our 
banking system.
  The American people are being told not to worry, however, because it 
is all being done for their own good.
  While a consumer protection agency might sound like a good idea, the 
way it is constructed in this bill will slow economic growth and kill 
jobs by imposing massive new regulatory burdens on businesses, large 
and small. It will stifle innovation in consumer financial products, 
and it will reduce small business activity. It will lead to reduced 
consumer credit and higher costs for available credit.
  Less credit at higher price will dampen the very small business 
engines of job creation that our economy desperately needs right now. 
That is a price I am not willing to pay.
  Congress could have implemented reforms to improve derivatives market 
activities. Instead, the bill's derivatives title seems to be inspired 
by a desire to be punitive or to provide short-term political support 
during an election, or both. Instead of imposing a rational and 
effective regulatory framework on the OTC derivatives market, the bill 
runs roughshod over the Main Street businesses that use derivatives to 
protect themselves every day.
  The Dodd-Frank bill will increase companies' costs and limit their 
access to risk-mitigating derivatives without making our financial 
system safer in the process. As a result, there will be fewer 
opportunities for businesses to grow, fewer jobs for the unemployed, 
and higher prices for consumers.
  Congress could have written a bill to put an end to overreliance on 
credit agencies and underreliance on their own due diligence. Instead, 
the Dodd-Frank bill sets up new regulations and liability provisions to 
give the impression that ratings are accurate. It then takes a 
contradictory direction and instructs regulators to replace references 
to ratings with other standards of creditworthiness.
  To make matters even more confusing, the bill also provides for the 
establishment of a government-sponsored body that will select a credit 
rating agency to perform an initial rating of a security issue.
  I anticipate the net effect of these conflicting provisions will be a 
reduction of competition among credit rating agencies. Potential 
competitors either will be deterred by all of the new regulatory 
requirements or be destroyed by the liability provisions set up in the 
bill. The lack of competition led to poor quality ratings in the runup 
to the crisis. This bill perpetuates and, in fact, worsens that 
problem.
  Congress could have eased regulatory burdens on small and medium-
sized businesses not integral to the recent crisis or any crisis. 
Instead, Main Street corporations will be subject to a panoply of new 
corporate governance and executive compensation requirements.

  These new requirements will be costly and potentially harmful to 
shareholders because they empower special interests and encourage 
short-term thinking by managers. These features were included solely 
for the purpose of appeasing unions and other special interest 
lobbyists, and there is no demonstrated link between these changes and 
the enhanced stability of our financial system or improved investor 
protection.
  We are getting toward the end. Congress could have held hearings or 
analyzed a number of changes this bill makes to the securities laws. 
Instead, dramatic changes in those laws were written with little 
discussion and no analysis.
  Throughout this process, there has been a lot of talk about the 
influence of Wall Street over this bill. To be sure, in the early 
stages of the negotiations, Wall Street and the big banks were very 
engaged.
  I think the American people know, however, that in the end, the real 
influence peddlers on this bill were not Wall Street lobbyists but 
rather liberal activists and Washington bureaucrats. Wall Street and 
the big banks just happen to be the incidental beneficiaries of their 
success.
  When Chairman Dodd and I began this process, we agreed that the 
bureaucratic status quo was unacceptable and that radical change was 
necessary. With that in mind, we agreed to consolidate all the 
financial regulators and constrain the Fed to its monetary policy role.
  This was not a result the big banks wanted. The last thing a large 
regulated financial institution wants is a new regulator. After all, 
they spent years and millions of dollars developing a relationship with 
our current regulators.
  A major regulatory reorganization would seriously upset the status 
quo and cost them a great deal of money. Neither Chairman Dodd nor I 
were persuaded, however. Change was necessary and change was going to 
come.
  Unfortunately, that vision of reform began to die as the bureaucrats 
and the liberal left began to exercise their influence over the bill. 
When it became apparent that I was not willing to embrace the left's 
expansive consumer bureaucracy, it also became apparent that actual 
regulatory reform was not what the majority was seeking.
  All other serious reform was scuttled by the Democrats in defense of 
the new consumer bureaucracy. That was the point at which Chairman Dodd 
and I began to seek a new negotiating partner, ultimately to no avail.
  As the Fed and the other regulators began to regain their foothold 
with the Democrats and the administration and the activist left 
consolidated its support around an expansive new bureaucracy, all the 
Democrats will succeed in doing, with the help of a few Republicans, is 
give the failed bureaucracies more power, more money, and a pat on the 
back with the hope they will do a better job next time.
  That is not real reform. That is just more of the same.
  We had an opportunity to lead the world by creating a modern, 
efficient, and competitive regulatory structure that will serve our 
economy for years to come. Instead, I believe we squandered that 
opportunity by barely expanding our obsolete, inefficient, and 
uncompetitive system. To make it even worse, they have added to the 
bureaucratic morass several more unrestrained and unaccountable 
agencies.
  It became apparent early on to me that the administration and the 
Democratic majority were not interested in regulatory reform. All they 
were trying to do is exploit the crisis in order to expand government 
further and reward special interests.
  The Dodd-Frank bill will not enhance systemic stability. It will not 
prevent future bailouts of politically favored institutions and groups 
by the government.
  The bill serves only to expand the Federal bureaucracy and the 
government control of the private sector. It will impose large costs on 
the taxpayers and businesses.
  For these reasons, I urge my colleagues to reject this bill.
  The ACTING PRESIDENT pro tempore. The Senator from Connecticut.
  Mr. DODD. Madam President, I thank my colleague from Alabama. Once 
again--I say this with the respect--I feel as if I am listening to the 
first speech back in November when I offered the original proposal of 
this bill and wonder if we have been in the same

[[Page S5878]]

Chamber and same city over the last several years.
  I am not going to use the time between now and 11 a.m. when we are 
going to vote on the cloture motion. I will not go through the long 
list, page after page of amendments that were adopted as part of this 
bill offered by my good friends on the minority side.
  We had 80 hearings held over 2 years, with countless efforts to reach 
out and bring in people. One can make a lot of accusations about the 
bill, but this was a very inclusive process. Half the amendments 
adopted on the floor in this Chamber during consideration of this 
legislation over 4 weeks were ones offered by the minority and were 
accepted and bipartisan amendments. There was never an alternative 
offered. There was never a substitute offered. It was a question of 
whether people wanted to amend this legislation.
  It is not a perfect bill, I will be the first to admit. We do not 
know ultimately how well the ideas we incorporated will achieve the 
results we all desire. It will take the next economic crisis--as 
certainly it will come--to determine whether the provisions of this 
bill will provide this generation or the next generation of regulators 
with the tools necessary to minimize the effects of that crisis when it 
happens. But we believe we have done the best we could under the 
circumstances to see to it we never have another bailout of another 
major financial institution at taxpayer expense.
  In fact, it was the Shelby-Dodd amendment adopted in this Chamber--it 
was the second amendment we considered--that actually completed the 
process of seeing to it there would be bankruptcy or resolution of 
financial institutions that got themselves into so much trouble that 
they put the entire system at risk. We set up an oversight council to 
make sure we could observe what was occurring not only here at home but 
around the globe--matters such as Greece or Spain that could put our 
economy at risk. So it isn't just one set of eyes but having those 
responsible for seeing to it that our economy remains safe and sound 
have the opportunity to provide the early warning that never occurred.

  We didn't need a Pecora Commission to find out what was going wrong. 
We had mortgages being sold in this country to people who couldn't 
afford them, marketing them in a way that guaranteed failure, 
securitizing them so they could be paid and then skipping town in a 
sense. I didn't need to have hours of hearings to find out what was the 
cause of it. The question was, How do we try to put a system in place 
to minimize the future kind of risks our Nation would face. It wasn't 
just to deal with those who created the problem but, rather, to look 
ahead--not in a punitive way--and to set up an architecture and 
structure to allow us to get to that point where we could be confident 
we were addressing these issues.
  Thirdly, of course, we tried to deal with exotic instruments that had 
caused so much of the difficulty. The derivatives market was a $90 
billion market, and it mushroomed in less than a decade to $600 
trillion, putting our Nation at risk because of a lack of transparency 
and accountability to determine what was occurring in those markets. To 
consider it a radical idea that we might want to have accountability 
and transparency I find remarkable considering what our country has 
been through.
  Also, we provided a consumer protection bureau. What a radical idea 
that is--the idea that people who buy mortgages or have a student loan, 
a credit card, a car loan, might have someplace in this city that 
watches out for them so their jobs, their homes, their retirement 
accounts are not lost. So while this bureau is in place in this bill, 
the idea was at least to see to it that people, when they have the 
problems they have been through or are going through, someone is 
watching out for them.
  We have a Consumer Product Safety Commission to address the purchase 
of a faulty product, but what happens when someone abuses or takes 
advantage, as happens in so many cases in financial areas? People 
should have a chance to have a redress of their grievance or to at 
least from the outset have an opportunity to address that before it 
becomes a broader problem.
  So, Madam President, again, we have debated this now for 2 years and 
countless opportunities. We spent 4 weeks on the floor of this Chamber, 
amendments were offered, and never once--I guess on one occasion we had 
a supermajority vote. There was only one tabling motion I know of. I 
did everything I could to make this as inclusive a process as possible.
  I understand some people don't like the bill. It saddens me, in a 
way, that it has once again become sort of a mindless partisan argument 
rather than talking about what we need to be doing. This is not the end 
of all of it, obviously. Oversight will be required, consultation in 
the coming weeks and months and years, to make this work well. But, 
Madam President, I can't imagine another process that has been as 
inclusive.
  My colleagues will recall that almost 10 months, going on almost a 
year ago, I invited both Democrats and Republicans on the Banking 
Committee to assume responsibility for major sections of this bill, 
which they did do, by the way, and made a significant contribution to 
the product. So while I respect those who want to vote against the 
bill, and that is their right to do so, find some arguments based on 
the merits rather than arguing about whether there was a process that 
was inclusive or that allowed people the opportunity to be heard.
  Again, we have the right to be heard, but we don't have the right 
necessarily to have our ideas become the law of the land. That is what 
a body like this is for.
  So this is a major undertaking, one that is historic in its 
proportions, and it is an attempt to set in place a structure that will 
allow us to minimize problems in the future. I can't legislate 
integrity. I can't legislate wisdom. I can't legislate passion or 
competency. What we can do is to create the tools and the architecture 
that allow good people to do a good job on behalf of the American 
public. That is what a bill like this is designed to do.
  I regret I can't give jobs back, restore foreclosed homes, or put 
retirement monies back into accounts. What I can do is to see to it 
that we never, ever again have to go through what this Nation has been 
through. That is what this effort has been about over the last several 
years, to try to create that structure, that architecture. It will be 
incumbent now on the present administration and those who follow to 
nominate good people to head up these operations, to attract good 
public servants who will fill the jobs of these various regulatory 
bodies to see to it that they do the work we all want them to do.
  Again, I can't legislate that. I can merely create the opportunity 
for that kind of protection to occur--to modernize a financial system, 
to lead the world, if we can, in harmonizing rules so we don't have the 
kind of sovereign shopping that was going on with regulatory bodies, 
where major financial institutions would shop around the world as to 
the nation of least resistance or the regulator of least resistance.
  We need to see to it that we have the unanimity or at least the 
harmonization of rules that will allow us to have a more orderly system 
in our globe because, as we have all painfully learned, matters that 
occur thousands of miles away can affect the economy in our own 
country.
  So for all those reasons, Madam President, I thank my colleagues for 
their efforts over the last 2 years. I thank the leadership for 
providing the opportunity and time for us to do this in this Chamber. I 
thank my colleague in the House, Barney Frank, and his colleagues for 
the work in which they engaged in order to produce a bill there. We 
spent 2 weeks, some 70 hours of debating the conference report, where 
more amendments were adopted--again, offered by my colleagues, 
Republicans and Democrats--to make this as good a bill as we could in 
all of this.
  So with that, Madam President, I will reserve some comments for 
later, but as we approach this vote in the next few minutes, I urge my 
colleagues to invoke cloture, to allow us to then have an up-or-down 
vote on this bill, and to do what we can to restore some trust and 
confidence and optimism for the American people. In the midst of the 
worst economic crisis in the lives of most Americans, this 
institution--the Senate--rose to the occasion and crafted a bill to 
address the financial

[[Page S5879]]

service structure of our Nation to once again give us the hope that we 
can see wealth created, jobs produced, and an economy that will offer 
opportunities for the next generation of Americans.
  I urge my colleagues to support the cloture motion, and I urge them 
to support the bill when the vote occurs later today.
  I yield the floor.
  The ACTING PRESIDENT pro tempore. The Republican leader.
  Mr. McCONNELL. Madam President, later today, we will have a decisive 
vote on the financial regulatory bill that does nothing to reform the 
government-sponsored enterprises that many people believe to have been 
at the root of the financial crisis this bill grew out of--a bill that 
was meant to rein in Wall Street but which is now supported by some of 
Wall Street's biggest banks and opposed by small community banks in my 
State; a bill that is meant to help the economy but which is widely 
expected to stifle growth and kill more jobs in the middle of a deep 
recession; and a bill that, according to the papers, the vast majority 
of Americans simply don't think will work.
  As it turns out, the American people don't seem to like this 
government-driven solution to the financial crisis any more than they 
liked the Democrats government-driven solution to the Nation's health 
care crisis. They do not think this bill will solve the problems in the 
financial sector any more than they think the health care bill will 
lead to lower costs or better care. One survey this week indicates that 
7 in 10 Democrats have little confidence the proposals in this bill 
will avert or lessen the impact of another financial catastrophe, and 
nearly 70 percent of them doubt it will make their savings more secure.
  It is easy to see why. The Wall Street Journal calls this bill's 
2,300 pages ``the biggest wave of new Federal financial rulemaking in 
three generations.'' The chairman of the Banking Committee has famously 
said last month we would not know how this bill works until it is in 
place. But here are some initial indicators about its scope according 
to a study by the U.S. Chamber of Commerce on the new bureaucratic 
landscape under this bill: 70 new Federal regulations through the new 
Bureau of Consumer Financial Protection, 54 new Federal regulations 
through the U.S. Commodity Futures Trading Commission, 11 new Federal 
regulations through the Federal Deposit Insurance Corporation, 30 new 
Federal regulations through the Federal Reserve, and 205 new 
regulations through the Securities and Exchange Commission.
  Those are just some of them. All told, this bill would impose 533 new 
regulations on individuals and small businesses, regulations that will 
inevitably lead to the kind of confusion and uncertainty that will make 
it even harder for struggling businesses to dig themselves out of the 
recession. It is just this kind of uncertainty that will deter lending 
and freeze up credit as lenders wait to see how they will be affected 
by the new regulations. It is just this kind of uncertainty that 
businesses cite time and time again as one of the greatest challenges 
to our economic recovery.
  So here is a bill that fails to address the root causes of the kind 
of crisis it is meant to prevent, that creates a vast new unaccountable 
bureaucracy, that--if past experience is any guide--will lead to 
countless burdensome, unintended consequences for individuals and small 
businesses; a bill that constricts credit and stifles growth in the 
middle of the worst economic period in memory; and perhaps most 
distressing of all, a bill that punishes farmers, florists, doctors, 
retailers, and countless others across the country and far away from 
Wall Street who had absolutely nothing to do with the panic of 2008.
  In other words, once again, the administration and its Democratic 
allies in Congress have taken a crisis and used it rather than solving 
it. How else can you explain the fact a bill that was meant to address 
the excesses on Wall Street is expected to hit individuals and 
industries that had nothing to do with the crisis it was meant to 
prevent?
  Did anybody think when this bill was first proposed that it would end 
up hurting storefront check cashers, city governments, small 
manufacturers, home buyers, credit bureaus, and farmers in places such 
as Kansas and Kentucky?
  This is precisely the kind of thing Americans are tired of--a 
government simply out of control. Only in Washington would you create a 
commission aimed at looking into the causes of a crisis, then put 
together and pass a 2,300-page bill in response to that crisis before 
the commission even has a chance to report its findings and issue 
recommendations. The White House will call this a victory. But as 
credit tightens, regulations multiply, and job creation slows even 
further as a result of this bill, they will have a hard time convincing 
the American people this is a victory for them.
  Obviously, I will be opposing this bill, and I would encourage my 
colleagues to oppose it as well.
  Madam President, I yield the floor.
  Mr. DODD. Madam President, I suggest the absence of a quorum, and I 
ask unanimous consent the time during the quorum be equally charged to 
both sides.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.
  The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. REID. Madam President, I ask unanimous consent the order for the 
quorum call be rescinded.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.
  Mr. REID. Madam President, the Wall Street earthquake that sent shock 
waves around the world has not hit anywhere as hard as it hit Nevada. 
You can draw a straight line from unchecked greed on Wall Street to the 
collapse of the housing market on Main Streets throughout my State and 
around the country. As soon as the big banks went down, foreclosure 
signs went up.
  How did this happen? Let's put it this way: When you go to any of the 
great casinos across Nevada and put your chips on the table, you are 
gambling with your own money. If you win, you win, and if you lose, you 
lose. But Wall Street rigged the game. They put our money on the table. 
When they won, they won big. The jackpots they took home were in the 
billions. And when they lost--and, boy, did they lose--they came crying 
to the taxpayers for help. The winnings were theirs to enjoy but the 
losses were all of ours, to share and to shoulder.
  That is the way the market worked. It worked for a few fortunate ones 
in the big firms and worked against everyone else. So when I say that 
is how the market worked, what I mean is that it didn't work at all. It 
was badly broken and it nearly bankrupted us. It cost 8 million workers 
their jobs, millions of retirees their savings, and millions of 
families their homes. It shattered our faith in our financial system.
  But there is another problem. We have been talking about this rigged 
system, this raw deal, in the past tense, but it is not a thing of the 
past. It is very much in the present. The rules that allowed Nevada's 
economy to collapse are still the same rules of the road today. That 
means every new day we do not act we run the risk of it happening all 
over again. That is a gamble I am not willing to take.
  The bill before us makes sure we do not have to take that gamble. The 
first question was, How did this happen? The next question is, What are 
we going to do about it?
  No. 1, we are saying to those who gamed the system that the game is 
over. We are cracking down on those who gambled away what so many have 
worked so hard to put away.
  No. 2, we are saying to the families and taxpayers, never again will 
you be asked to bail out a big bank when the bank loses its risky bets.
  Let me say that again because it is one of the most important parts 
of this bill: No more bailouts because no bank is too big to fail. We 
are going to give consumers and investors the strongest protections 
they have ever had against abusive banks, mortgage companies, credit 
card companies, and credit rating agencies. We are going to bring 
derivative markets that operate in the darkness out into the light. We 
are going to hold Wall Street accountable because we know we are 
accountable to the American people. This is about our ability to trust 
our financial system, it is about giving families the peace of

[[Page S5880]]

mind they deserve, the peace of mind that comes with the knowledge they 
will be able to keep their homes and their savings will be safe.
  We need a free market to thrive and grow and succeed. We acknowledge 
that. But there also have to be some rules, not to stifle but to 
safeguard us; rules so that when these firms fail they don't bring us 
down with them.
  When this earthquake hit there was not nearly enough oversight, 
transparency, or accountability to shield us from the fallout. This law 
will change that. It will strengthen all three.
  We are at the finish line this morning but getting here has not been 
easy. Wall Street doesn't like this bill. Of course it doesn't. Why 
would they want us to change the system they rigged, the system that 
made them all rich? Their cronies in Washington don't like it either. 
The top Republican in the House very publicly said the plight of 
millions was as small and insignificant as an ant, an insect; 
foreclosures, homes underwater, jobs lost--like an ant. The head of the 
Republican party asked us to simply trust Wall Street to look after 
itself.
  We all know this crisis is enormous and we all know Wall Street is 
not going to reform itself. Rather than standing up for the taxpayers, 
those who are about to vote no are standing with the same bankers who 
gambled away our jobs and homes and our economic security in the first 
place. Just like their Wall Street friends, it seems our opponents care 
more about making short-term gains than they do about what is right for 
the economy in the long run. I think that is a mistake and I think it 
is a shame.
  This is not about dollars and cents only, it is about fairness. It is 
about justice. It is about making sure there is not a next time. It is 
about jobs. It is about rescuing our economy.
  I know Wall Street reform is complicated. There are not many people 
who know all the ins and outs of derivative trading and credit default 
swaps or mortgage-backed securities. But the principle before us is 
quite simple. It is not complicated at all. You either believe that we 
need to strengthen the oversight of Wall Street or you don't. You 
either believe we need to strengthen protections for consumers or you 
don't.
  Our choice today is between learning from the mistakes of the past or 
dangerously letting them happen all over again.


                             Cloture Motion

  The ACTING PRESIDENT pro tempore. The cloture motion having been 
presented under rule XXII, the Chair directs the clerk to report the 
motion to invoke cloture.
  The legislative clerk read as follows:

                             Cloture Motion

       We, the undersigned Senators, in accordance with the 
     provisions of rule XXII of the Standing Rules of the Senate, 
     hereby move to bring to a close debate on the conference 
     report to accompany H.R. 4173, the Wall Street Reform and 
     Consumer Protection Act.
     Harry Reid, Christopher J. Dodd, Charles E. Schumer, Sheldon 
     Whitehouse, Amy Klobuchar, Thomas R. Carper, Benjamin L. 
     Cardin, Jeff Merkley, Kay R. Hagan, John F. Kerry, Tom 
     Harkin, Jack Reed, Frank R. Lautenberg, Mark Begich, Barbara 
     Boxer, Mark R. Warner, Joseph I. Lieberman.

  The ACTING PRESIDENT pro tempore. By unanimous consent the mandatory 
quorum call has been waived. The question is, Is it the sense of the 
Senate that debate on the conference report to accompany H.R. 4173, 
Restoring Financial Security Act of 2010, shall be brought to a close?
  The yeas and nays are mandatory under the rule.
  The clerk will call the roll.
  The legislative clerk called the roll.
  Mr. KYL. The following Senator is necessarily absent: the Senator 
from Idaho (Mr. Crapo).
  The ACTING PRESIDENT pro tempore. Are there any other Senators in the 
Chamber desiring to vote?
  The yeas and nays resulted--yeas 60, nays 38, as follows:

                      [Rollcall Vote No. 206 Leg.]

                                YEAS--60

     Akaka
     Baucus
     Bayh
     Begich
     Bennet (CO)
     Bingaman
     Boxer
     Brown (MA)
     Brown (OH)
     Burris
     Cantwell
     Cardin
     Carper
     Casey
     Collins
     Conrad
     Dodd
     Dorgan
     Durbin
     Feinstein
     Franken
     Gillibrand
     Hagan
     Harkin
     Inouye
     Johnson
     Kaufman
     Kerry
     Klobuchar
     Kohl
     Landrieu
     Lautenberg
     Leahy
     Levin
     Lieberman
     Lincoln
     McCaskill
     Menendez
     Merkley
     Mikulski
     Murray
     Nelson (NE)
     Nelson (FL)
     Pryor
     Reed
     Reid
     Rockefeller
     Sanders
     Schumer
     Shaheen
     Snowe
     Specter
     Stabenow
     Tester
     Udall (CO)
     Udall (NM)
     Warner
     Webb
     Whitehouse
     Wyden

                                NAYS--38

     Alexander
     Barrasso
     Bennett (UT)
     Bond
     Brownback
     Bunning
     Burr
     Chambliss
     Coburn
     Cochran
     Corker
     Cornyn
     DeMint
     Ensign
     Enzi
     Feingold
     Graham
     Grassley
     Gregg
     Hatch
     Hutchison
     Inhofe
     Isakson
     Johanns
     Kyl
     LeMieux
     Lugar
     McCain
     McConnell
     Murkowski
     Risch
     Roberts
     Sessions
     Shelby
     Thune
     Vitter
     Voinovich
     Wicker

                             NOT VOTING--1

       
     Crapo
       
  The ACTING PRESIDENT pro tempore. On this vote, the yeas are 60 and 
the nays are 38. Three-fifths of the Senators duly chosen and sworn 
having voted in the affirmative, the motion is agreed to.
  Mr. DODD. Madam President, I am about to propose a unanimous-consent 
request that has been agreed to by the respective leaders.
  I ask unanimous consent that the postcloture time be considered 
expired at 2 p.m., with the time until then equally divided and 
controlled between Senators Dodd and Shelby or their designees; that 
during this period, if and when a budget point of order is raised 
against the conference report, then an applicable waiver of the point 
of order be considered made; that at 2 p.m., the Senate proceed to vote 
on the motion to waive the applicable budget point of order; that if 
the waiver is successful, without further intervening action or debate, 
the Senate vote on adoption of the conference report.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.
  Mr. DODD. I yield the floor.
  The ACTING PRESIDENT pro tempore. The Senator from New Hampshire.
  Mr. GREGG. Madam President, I rise to make a point of order that the 
Senator from Connecticut alluded to. We have rules around here we have 
set up to discipline ourselves on spending. Unfortunately, we 
consistently ignore and waive them. That is one of the reasons we have 
a $13 trillion debt. That is one of the reasons we will have a $1.4 
trillion deficit this year alone. This bill violates those rules. This 
bill violates one of the sections of those rules which says that in any 
10-year period, we shall not have more than a $5 billion effect on the 
deficit in a negative way; that we need to otherwise pay for what we 
are doing. Therefore, this bill does violate the Budget Act.
  If we are going to have any fiscal discipline around here--and we 
hear a lot of people talking about that--we should be living by the 
rules we have to assert fiscal discipline. Therefore, I make a point of 
order that the pending bill violates section 311(b) of S. Con. Res. 70 
of the 110th Congress.
  Mr. DODD. Madam President, pursuant to section 904 of the 
Congressional Budget Act of 1974 and the waiver provisions of 
applicable budget resolutions, I move to waive all applicable sections 
of that act and those budget resolutions for purposes of the pending 
conference report and ask for the yeas and nays.
  The ACTING PRESIDENT pro tempore. Is there a sufficient second?
  There appears to be a sufficient second.
  The yeas and nays were ordered.
  Mr. GREGG. I understand the vote will occur somewhere around 2 
o'clock.
  The ACTING PRESIDENT pro tempore. The Senator is correct.
  Mr. DODD. Madam President, I see my colleague from Texas is seeking 
recognition. I wish to publicly thank her. She made a substantial 
contribution to this bill on several amendments that were adopted 
during debate on the floor. I thank her for them. They added to the 
value of the legislation. I am not sure what her comments will be right 
now, but I thank her for her contributions.
  The ACTING PRESIDENT pro tempore. The Senator from Texas is 
recognized.
  Mrs. HUTCHISON. Madam President, I appreciate the comments of the 
chairman. He accommodated many of the amendments I had, particularly as 
it concerns community banks. That was a huge concern in the original

[[Page S5881]]

draft of the bill. I thank the chairman for accommodating those 
concerns. It did make it a better bill.
  I wish to return to the aftermath of the financial crisis, when 
Congress was tasked with the responsibility of modernizing our 
financial regulatory structure so that we would have proper oversight 
of today's banking system and financial markets. We were called to fill 
in gaps in regulations which allowed American home buyers to simply 
sign on the dotted line to purchase a house that was in many instances 
beyond their means, to let companies hide trillions of dollars in 
assets from regulators, and ultimately led our government to lose 
hundreds of billions of taxpayer dollars to bail out financial 
institutions--Fannie Mae, Freddie Mac, GM, Chrysler, and AIG. Thus, 
were financial regulatory reform to succeed, we needed to enhance 
mortgage underwriting standards, bring greater transparency to the 
derivatives markets, and once and for all end too big to fail. The 
conference report before us takes steps toward these goals.
  The legislation puts in place measures to address too big to fail; 
however, it falls short in fully addressing the risk of future 
government bailouts by failing to make changes to the Bankruptcy Code. 
In this legislation, we have also made strides to strengthen mortgage 
underwriting standards.
  I am concerned that a newly formed Consumer Financial Protection 
Bureau will take the lead rather than our banking regulators, and this 
is one of the biggest concerns I have with the bill.
  I am pleased that the conference report includes numerous measures 
for which I fought. I thank Chairman Dodd for his willingness to work 
with me and his constructive approach to making changes to the bill, 
including a more level playing field for community banks across the 
country to compete through my amendment to bring parity to FDIC 
insurance assessments; my amendment, along with Senator Klobuchar, to 
allow State-chartered banks and small and medium-size bank holding 
companies to retain Federal Reserve supervision so that our monetary 
policy truly reflects economic conditions throughout the country, not 
just on Wall Street; relief for small and medium-size public companies 
from the burden of rule 404(b) of Sarbanes-Oxley; and assurance that 
the Volcker rule's proprietary trading restrictions will not extend to 
the insurance affiliates of insurance companies with depository 
institutions. These are positive changes for which I give the chairman 
great credit. However, these positive changes are greatly outweighed by 
misplaced priorities to create new layers of bureaucracy while failing 
to address the root causes of the financial crisis--Fannie Mae and 
Freddie Mac.
  Additionally, there are a series of provisions that are troubling to 
me. No. 1 is this consumer protection bureau. It is using the faults of 
Wall Street banks and executives to create a cumbersome new bureaucracy 
which will impose job-killing regulation at the expense of Main Street 
small businesses and families. The Consumer Financial Protection 
Bureau, with endless authority over all facets of our economy, is not 
the answer.
  I am particularly concerned about the effect this bureau will have on 
well-regulated, safe, sound community banks. These banks largely 
avoided the subprime market, and they didn't engage in the risky 
speculative trades that contributed to the financial meltdown. However, 
these community banks are going to have 27 new or expanded types of 
regulation after this bill is passed. The consumer bureau could 
ultimately determine what products community banks can offer, on what 
terms they can offer these products, and under what settings and 
circumstances. Overall, the consumer bureau will result in fewer 
products and services for American families and small businesses.
  The Texas Bankers Association tells me consumer bureau rules could 
result in the end of free checking accounts, higher fees on all 
consumer services, and less opportunity to negotiate on loans. It is 
not the big banks on Wall Street voicing concerns and opposition to 
this bill. The opposition is coming from community bankers in Texas who 
are worried they will be unduly penalized for faults they did not 
commit.
  Small businesses are also against this new consumer bureau. The U.S. 
Chamber of Commerce and the National Federation of Independent Business 
are very concerned about this bureau.
  We need community banks to continue extending credit to worthy 
families looking for a home and to small businesses to invest in and 
create jobs. I cosponsored an amendment during Senate consideration to 
ensure that safety and soundness regulators would have a say in the 
rules and regulations imposed on their institutions. That amendment was 
rejected, leaving community banks subject to this new bureau's 
unlimited and unchecked rulemaking authority.
  I am also concerned with the treatment of derivatives in this 
legislation. I am concerned that the lack of transparency that needed 
reform has been exchanged for a regulation I do not think is going to 
properly regulate derivatives.
  However, we must also protect end users such as airlines, utilities, 
manufacturers, and oil and gas companies. These companies use 
derivatives as a cost effective strategy to control price and risk. 
Many structure derivatives contracts are unique to their business, 
making it difficult to clear and trade on a market. I share concerns 
from derivatives end users that this mandate to post margins with cash, 
rather than collateral, will remove capital from investment and job 
creation.
  While Senator Dodd and Senator Lincoln say that this legislation will 
not impose margin requirements, I worry that there is not a statutory 
exemption for end users. End users may even choose market volatility 
instead of risk-controlling derivatives altogether, exposing Americans 
to higher prices, slower economic growth, and more job losses.
  We should seek transparency through greater reporting requirements, 
but businesses should not be forced to arbitrarily move money to margin 
accounts.
  I am concerned that this legislation will cost more jobs at a 
particularly harmful time with national unemployment hovering around 10 
percent. The Chamber of Commerce reports that the margin requirement on 
OTC derivatives could cost 100,000 to 120,000 jobs in S&P 500 companies 
alone.
  This legislation does nothing to rein in Fannie Mae and Freddie Mac. 
Since the government takeover of these two GSEs, taxpayers have paid 
$145 billion to keep them afloat. The CBO reports that the government's 
cost to bail out Fannie and Freddie will eventually reach $381 billion.
  These costs contributed to a Federal deficit which has topped $1 
trillion for the first 9 months of fiscal year 2010. They have helped 
push our national debt to $13 trillion. A couple of weeks ago, the CBO 
reported that United States debt will reach 62 percent of GDP by the 
end of this year, the highest since just after World War II. We cannot 
continue to this dangerous path and mirror the crisis that currently 
ravages Europe.
  We cannot sustain these debts and deficits. We offered solutions to 
rein in Fannie Mae and Freddie Mac. During Senate consideration of this 
legislation, I cosponsored amendments--No. 3839 and No. 4020--which 
would have re-imposed the cap of Federal assistance to the GSEs at $200 
billion each. These amendments would have brought Fannie Mae and 
Freddie Mac onto our budget so that Americans could see their true 
cost. And they would have brought an end to Fannie and Freddie's 
government conservatorship in 2 years. Unfortunately, these amendments 
were rejected. Furthermore, the conference committee would not even 
permit amendments to be offered on the GSEs. Instead, this legislation 
calls for a report, punting the plan for Fannie and Freddie that we 
need to the future. We need reform of Fannie Mae and Freddie Mac now, 
but this legislation does not even allow for debate of the GSEs.
  The American people are frustrated with our government, and this 
legislation is an example of why. Under the guise of financial 
regulatory reform, this legislation continues the unprecedented growth 
in government.
  The American people want sensible financial reform. However, this 
purported financial regulatory reform legislation does not even address 
the root causes of the crisis: Fannie Mae and Freddie Mac. Instead, it 
uses the crisis to add layers of Federal bureaucracy,

[[Page S5882]]

and threatens to slow down our economic recovery, risking job loss and 
restricting access to credit.
  For these reasons, this legislation is not the reform we need, which 
is why I must oppose the conference report for H.R. 4173.
  We need to fully look at some of the concerns in this bill with the 
hope that when it passes--I cannot support it, but it will pass--these 
cautions will be looked at going forward to perhaps, when the problems 
come to light later, make some changes to the law that will better 
accommodate the needs of consumers and small businesses and community 
banks in the country.
  There are good parts of this bill. I think the chairman deserves a 
lot of credit for pushing this financial reform, knowing that we needed 
to do it. I don't think it fully meets the test of doing what we should 
be doing, but I do think it is a first step, and the chairman is to be 
commended for his leadership.
  I yield the floor.
  The ACTING PRESIDENT pro tempore. The Senator from Connecticut.
  Mr. DODD. Madam President, my friend and colleague from Texas serves 
on the Banking Committee. I thank her and Senator Klobuchar. There was 
a series of amendments in which Senator Hutchison was involved. They 
added value to this bill, and I thank her for it.
  I mentioned yesterday, as a relatively junior member of the Banking 
Committee, there was no Member of this Chamber who added as much to the 
bill as the Senator from Virginia. There are not words nor time for me 
to adequately express my gratitude for his involvement. Literally 
almost on an hourly basis, he was involved, along with Senator Corker 
of Tennessee. They spent hours on their own talking with other people 
about how to fashion two of the most critical titles of this bill. Let 
me express my gratitude once again to Senator Mark Warner of Virginia 
and thank him immensely for his contribution. He did a great job.
  The ACTING PRESIDENT pro tempore. The Senator from Virginia.
  Mr. WARNER. Madam President, I thank the chairman for those kind 
remarks. It is a good feeling for all of us who have labored on this 
legislation--Members and staff--that we are finally coming to a 
successful conclusion on the Dodd-Frank Wall Street Reform and Consumer 
Protection Act and it is going to be enacted into law.
  As those equally controversial pieces of legislation in the 1930s 
stood the test of time for decades, I think this bill will stand the 
test of time for decades as well in terms of creating a new set of 
rules of the road for not just America's financial sector but, in a 
sense, the world's financial sector for decades to come.
  While not perfect--no piece of legislation is--one of the things that 
gives me some confidence that the right balance has been struck is that 
this bill has been criticized by both the left and the right. Some on 
the left, some on the Democratic side, have said the bill has not gone 
far enough in putting more requirements and restrictions on our 
financial institutions. Some of my colleagues on the Republican side, 
on the right, have said this bill goes too far.
  The fact that it is getting perhaps that left-and-right criticism 
puts us maybe in that right-in-the-middle section, which is the 
appropriate balance we tried to strike since the chairman started this 
effort well over 2 years ago.
  I think it is important at times we remember why we are here. Two 
years ago, the markets were in chaos. President Bush and Secretary 
Paulson had created TARP with a $700 billion unprecedented bailout to 
shore up our financial system. President Obama was in crisis mode with 
our economy still in free-fall from day one. The Dow was at 6,500, and 
there was a lot of talk of nationalizing banks.
  Well, close to a year and a half to 2 years later, we have seen 
stimuluses and stress tests. We have seen a DOW that now has touched 
11,000. While the economy is not creating jobs at the rate any of us 
would like to see, the talk of financial Armageddon or complete 
collapse has disappeared.
  I think we went into this process with three goals: First, the 
taxpayers must never again hear that a company is too big to fail. 
Second, we had to fix our regulatory system to make sure the huge gaps 
that existed that allowed systemic regulatory arbitrage could no longer 
take place. And, finally, consumers and investors had to have 
confidence that our markets were fair, transparent, and that there 
would be an officer on the beat to make sure some of the excesses that 
took place in 2005, 2006, and 2007--where folks were being put into 
homes they could never afford to pay for or having financial 
instruments that were being created under the guise of lowering the 
cost of risk that were more about simply creating fee income--would 
never again prey on unweary investors or on homeowners who got 
themselves into trouble.
  I think one of the most interesting critiques that some still make of 
the bill is that we have not addressed too big to fail. Well, candidly, 
with the United States moving first on this legislation, and the rest 
of the world waiting for the United States to move, we hear from our 
European colleagues that the framework we have set up, actually, they 
hope to emulate. We have created a new regulatory structure so the 
regulators can get out of their silos--depository institutions on one 
side, security institutions on another, derivatives trading on a 
third--and make sure we have a full systemic risk council so we can 
measure risk wherever it exists, regardless of the charter of the 
organization.
  While some said we ought to go ahead and limit the asset size of some 
of our institutions, just on size alone, I think the chairman wisely 
decided as we went through a year and a half of hearings, what often 
precipitated the greatest risks to our system was not size alone--
America has only 4 of the 50 largest banks in the world--but it was the 
interconnectedness, their leverage, their failure to have appropriate 
risk management plans in place.
  This new systemic risk council is specifically charged with making 
sure our large, more complex institutions have more stringent capital 
requirements, leverage ratios, liquidity requirements, and risk 
management tools. We even created two whole new categories, that while 
not fully tested--both of these categories actually came from 
colleagues on the other side of the aisle--they could be important new 
steps to prevent these large institutions from failing.
  One is contingent debt that large institutions would have to have 
that if they get themselves even close to trouble, that debt would 
convert into equity, consequently diluting existing shareholders and 
management and keeping pressure on the board to make sure management 
would not take that risk.
  Finally, a tool that, again, if implemented correctly, will be 
tremendously powerful; that is, to ensure that all these large, complex 
institutions provide a plan about how they will be able to unwind in an 
orderly fashion through traditional bankruptcy provisions. Our goal is 
to always have bankruptcy be the appropriate response. If that 
liquidation plan or if that debt plan is not blessed by the council of 
regulators, the council of regulators can dismember, break up, or put 
other restrictions on these large institutions.
  I think Senator Dodd made the decision to task my good friend, 
Senator Corker of Tennessee, and I with this issue: If those processes 
still do not work, how do we make sure we have an orderly liquidation 
process? Our goal was twofold: One, taxpayers should never have to bear 
the risk; and, two, if an entity goes into liquidation, it will not 
come out. Liquidation or resolution is not an attempt to stand up an 
institution. But we wanted to make clear to shareholders, to 
management, if you go into resolution, you are toast, as my colleague, 
Senator Corker, often said.
  We think we have reached that goal, and I am particularly proud of 
titles I and II of this bill. Actually, when Chairman Dodd and Senator 
Shelby put some amendments to it, it was endorsed by 95 of our 
colleagues. It is the broadest bipartisan section of this legislation. 
This bill addresses a number of other vital areas as well. It allows a 
single depository place to get the appropriate day-to-day information 
on our financial institutions--that still did not exist until we 
created the Financial Services Oversight Council--and having the 
ability to get on a daily basis the level of interconnectiveness of a 
future AIG.

[[Page S5883]]

  It puts in place a consumer protection bureau to make sure, for 
example, mortgages are regulated in a way that consumers can 
understand, regardless of the charter of the organization. We often 
found banks had a fairly good ability to regulate some of their 
mortgages; whereas, mortgage lenders and others, who were unregulated, 
had no such restrictions. Now we have an even playing field.
  It finally puts in place--there is some debate on this issue--an 
appropriate process to regulate derivatives and to bring these critical 
but potentially dangerous instruments out of the shadows, and the vast 
majority of these instruments will now be traded in a more transparent 
way on exchanges.
  There is more to be done. Domestic and international implementation 
is vitally important. As I mentioned at the outset, the United States--
and this is one of the things that is kind of remarkable, when I hear 
from some of my colleagues we have moved too quickly or this bill does 
too much--candidly, the whole rest of the world has been waiting on 
America to act to set the template for broad-based financial reform. 
Now that we have acted, I think particularly Europe and Asia will 
follow our stead. But making sure we do this with appropriate 
international implementation is terribly important--the Basel 
circumstances--but also making sure we have the regulatory approach 
across the world correct so there is not an international ability to 
arbitrage with these large financial institutions.

  I know some of my colleagues on the other side of the aisle have also 
raised the question that this bill does not fully address the GSEs. 
They are right. But I think it was the right and conscious decision of 
the chairman and others that to disrupt an already still fragile 
housing market at this moment in time in a piece of legislation that 
has already been accused by some as being too broad and covering too 
many items was not the appropriate choice.
  We will have to come back and deal with GSEs. We have to make sure, 
as we deal with GSEs, international implementation, we stay vigilant. 
We have given the regulators the tools. How they use these tools will 
be up to us in Congress to make sure they are implemented correctly 
with appropriate oversight.
  I am, in certain ways, disappointed this bill is not being passed 
with broader bipartisan legislation. But we have only gotten here 
because there is bipartisan support.
  I want to close acknowledging again--the chairman was very kind in 
his remarks--I cannot think, in my short tenure in the Senate, of any 
other Senator who has worked harder on a piece of legislation, who has 
been more relentless, who has had more twists and turns, who has had 
more ``we are there; but, oh, my gosh, we may not be there,'' who has 
had probably more 10 o'clock, 2 o'clock in the morning, 4 o'clock in 
the morning, I believe at one point, telephone calls and meetings with 
other Members.
  As the Senator from Texas mentioned earlier, even though the Senator 
from Texas could not support the overall bill, our chairman has worked 
with all Members regardless of party to try to accommodate their 
interests. I commend the Senator from Texas for pointing out, for 
example, the community-based and independent banks come out of this 
legislation as one of the real winners in terms of their ability to 
have more fair competition with the larger institutions.
  So I commend the chairman, and I commend all of my colleagues on both 
sides of the aisle, even those who perhaps will not vote for the final 
product but were a part of building the product, where their ideas were 
implemented.
  When we think about the Glass-Steagalls, and when we think about the 
bills that created the SEC, when we think about the legislation in the 
1930s, in the moment of crisis, that created the financial framework 
for 20th-century American capitalism, what this bill has done--there 
will be work done to improve and fully implement it, but what this bill 
has done has set a framework for 21st-century American capitalism and, 
in a certain way, a framework for 21st-century capitalism across the 
world in a way that America can remain the center for financial markets 
but at the same time making sure both consumers and the investing 
public are protected in this new and very challenging world.
  With that, I yield the floor. I again extend my compliments to the 
chairman and all who have been involved in this legislation.
  The ACTING PRESIDENT pro tempore. The Senator from Arizona.
  Mr. KYL. Madam President, I, too, would like to speak to the 
conference report on financial regulatory reform, which we will 
presumably vote on in a couple of hours. I think we all agree that the 
purpose of financial regulatory reform should have been to tackle the 
problems that led to the financial crisis in the first place. That 
means serious reform must, at the very least, end too-big-to-fail 
financial institutions and rein in two government-sponsored 
enterprises, the GSEs, Fannie Mae and Freddie Mac.
  But despite its size and the hype behind it, the bill before us fails 
in those two key respects. Moreover, even though Main Street did not 
cause the problem, the bill is so pervasive in its regulatory reach 
that it creates new burdens for Main Street businesses. I am not sure 
that is what the bill's supporters want or its authors intend, but that 
will be the result.
  For example, a July 4 Wall Street Journal news article entitled 
``Finance Overall Casts Long Shadow on the Plains'' explains how new 
derivatives rules will harm America's livestock farmers.
  There are other problems with the bill. The biggest new problem it 
causes is the harm to the availability of credit, something our 
colleague, Senator Gregg from New Hampshire, has talked a lot about. It 
implements one-size-fits-all capital standards and uses flawed funding 
mechanisms. It also perpetuates bailouts, and burdens small businesses 
with new regulations, which I will speak about in a moment.
  Let me address a few of these problems in more detail: First, the 
cost and offsets of the bill; second, the failure to address the GSEs, 
Fannie Mae and Freddie Mac; and, third, the job-killing Consumer 
Financial Protection Bureau that will reduce available credit for 
American businesses and thus reduce job creation.
  First, the cost and offsets. The Congressional Budget Office has put 
the 10-year cost of the conference report bill at approximately $19 
billion. That is the cost of this alleged new reform. Democrats 
initially tried to fund this obligation with a new tax imposed on large 
financial institutions. When that could not be sustained, they decided 
on a new funding mechanism that, as National Review recently 
editorialized, ``were a corporation to try it, would get its 
accountants sent to prison for fraud.''
  Here is how it works. The bill would now ``cancel'' the Troubled 
Asset Relief Program, or TARP, a few months early, thus ``saving,'' 
theoretically, the government around $11 billion, even though it is 
highly unlikely that money would ever have been used to make additional 
TARP loans. That $11 billion would then be used to partially offset the 
cost of the bill.
  Remember, that is money that has to be borrowed. So instead of simply 
borrowing 11 billion fewer dollars, we are going to pretend as though 
we already have that money and that we can save it by not spending it 
on TARP, so we will spend it on this legislation. It is a double 
counting that National Review is right about: It would have put a 
private business CEO or CFO in jail if he had tried to do an accounting 
trick such as that.

  The TARP law moreover states that any money rescinded from TARP shall 
not be counted for the purpose of budget enforcement. But to avoid 
violating the so-called pay-go rule in the House, the conference report 
nevertheless uses this alleged savings to pay for the financial reform 
provisions, thereby violating both the letter and the spirit of the 
TARP law. And, as I said, taking these funds to pay for something else 
rather than rescinding them simply pushes our Nation deeper into debt.
  So with regard to the cost of the bill--$19 billion--and the offset, 
much of which is not a true offset but simple double accounting with 
money we don't own or have anyway, but have to borrow, is a bad way to 
do business, to say the least, especially on something that is called a 
financial reform bill.
  Now, I guess, fortunately, we have changed the name to reflect the 
authors of the bill. It is no longer the financial reform bill; it is 
now the Dodd-

[[Page S5884]]

Frank bill. I appreciate the naming of the bill for my good friend, the 
Senator from Connecticut, but it is supposed to be about financial 
reform, and it isn't financial reform when you take money you don't 
have, spend it for something you are not legally able to spend it for, 
and call that an offset for the cost of the bill.
  Nevertheless, problem No. 2: Fannie and Freddie. It is just 
unconscionable that this bill doesn't attempt to reform in any way the 
two biggest causes of the problem: Fannie Mae and Freddie Mac. It was 
their reckless behavior that was a major cause of the financial crisis. 
It is not for lack of trying on Republicans' part. Our Democratic 
friends say: Well, we will do that later, maybe next year. I suggest 
doing that is highly improbable. The way things work around here is, 
when you do a comprehensive bill such as this, there are a lot of 
tradeoffs, a lot of different interests involved. If you can't include 
all of the elements in one bill, it is very difficult to find the 
political will to tackle the biggest problem of all--Fannie and 
Freddie--next year without the leverage of the other provisions of the 
bill to deal with.
  The behavior of these two institutions--these GSEs that have come to 
epitomize too big to fail--has surged through the entire commercial 
banking sector and our economy as a whole and has turned out to be one 
of the most expensive aftereffects of the financial crisis. For years, 
Fannie and Freddie made mortgages available to too many people who 
could not afford them. Smaller companies were crushed while the two 
GSEs and their shareholders reaped enormous profits, recklessly taking 
advantage of the government's implicit guarantee to purchase trillions 
of dollars worth of bad mortgages, including those made to risky, so-
called subprime borrowers. It was a textbook example of moral hazard on 
a massive scale.
  I was reminded of what I am speaking of this morning driving in and 
hearing an ad on the radio which said that through Fannie Mae, you 
could get a mortgage for 105 percent of the value of your home. Now 
that means that immediately you are so-called underwater; that is to 
say, you owe more than your home is worth.
  Why are we immediately making the same mistake with Fannie Mae that 
got us into the problem in the first place, where the mortgages 
exceeded the value of the homes? I don't understand it.
  The easy credit that was provided before is what helped to fuel the 
rising home prices that created the inflated housing bubble, especially 
in the subprime mortgage market. As prices rose, so too did the demand 
for even larger mortgages, so Fannie and Freddie looked for ways to 
make even more credit available to borrowers. But, of course, when the 
market collapsed, the two GSEs were left with billions of dollars of 
bad debt.
  By 2008 they held nearly $5 trillion in mortgages and mortgage-backed 
securities. They were overleveraged but, unfortunately, deemed too big 
to fail.
  So what do we have today? Fannie and Freddie hold a combined $8.1 
trillion of outstanding debt. Think of that: $8.1 trillion. In total, 
taxpayers have lost already $145 billion bailing them out. When 
Secretary of the Treasury Geithner lifted the bailout cap last 
December, it put the taxpayers on the hook for the remainder of these 
losses, for unlimited losses at these two institutions.
  So let's be clear. Every day that Fannie and Freddie remain in their 
current form is a day that U.S. taxpayers are subsidizing the failed 
policies of the past. I think it is very doubtful we are going to get 
meaningful reform of Fannie and Freddie when it couldn't be done in the 
bill that is supposed to deal with all of the underlying problems that 
created the recession we are in now.
  The third problem: Harming small business through ``consumer 
protection.'' It harms far more than small business; it harms everyone 
who is attempting to get credit. As our friend and colleague, Senator 
Gregg, has said many times on this floor, perhaps the biggest problem 
with this legislation is the fact that it is going to make credit much 
more expensive for everyone. But let's start with small businesses.
  In my home State of Arizona and across the country, these are the 
entities that hire. They are supposed to be the first ones that hire 
coming out of a recession. The way they do that is to have access to 
credit. Well, they are obviously very wary of the intrusive new 
bureaucracy that masquerades as consumer protection in this bill, but 
which would compound the problem of credit availability.
  All of us here support the concept of consumer protection, so let's 
don't get off on a tangent of being for or against consumer protection. 
We all support that. The question is, How do you do it? Safeguards can 
be strengthened without creating a new regulatory bureaucracy with the 
powers that exist in this bill and all of the untoward ramifications 
that result. Unfortunately, the conference report maintains, with very 
little change, the flawed Consumer Financial Protection Bureau from the 
bill that was passed in the Senate, the so-called CFPB. It is housed in 
and funded by the Federal Reserve but theoretically would operate as an 
independent agency with an enormous budget and with rule-writing 
ability and enforcement authority that I think will, in fact, create 
independence from the Fed.
  The CFPB could significantly reduce credit access for small 
businesses and thereby jeopardize America's economic recovery. Without 
available credit, companies cannot grow and consequently will not hire 
additional American workers. Obviously, that is not what the bill's 
authors intended, but it is the inevitable result.
  The new bureau will have a say in almost every aspect of American 
business. In an attempt to ensure--and I am quoting now--``ensure the 
fair, equitable and nondiscriminatory access to credit for individuals 
and communities''--the wording in the law--the new bureau will have 
latitude to impose its will, with few checks and balances, on American 
credit providers, all of which will result in more expense, more 
regulation, higher costs for consumers, and less availability of 
credit.
  The CFPB also exposes companies to very costly compliance and 
extensive enforcement proceedings, including potentially frivolous 
lawsuits, by eliminating national preemption and other means.
  In my view, the potentially serious costs of this bureau do not 
justify its purported benefits. Consumer protection could have been 
accomplished in much less intrusive and fairer ways. We all want to 
shield consumers from abuses and exploitation, but this is obviously 
not the right way to do it.
  So we should ask ourselves one question: Why is it that the CEOs of 
some of the largest companies on Wall Street, some of the largest 
financial institutions, actually favor this bill? Well, it is no skin 
off their backs. They have the money, and they have the resources and 
the personnel to deal with its complexity and to put the money up front 
and then charge the consumers on down the line. It would entrench their 
privileged status, as they have the resources to maneuver around its 
provisions, as I said, and would certainly institutionalize the idea 
that certain big financial firms deserve preferential treatment by 
Federal regulators.
  So for all of the reasons I have discussed, as well as others, and 
despite my strong desire to enact prudent financial reforms, I think 
this legislation is misguided. I can't support it, and I urge my 
colleagues to vote against it.
  The PRESIDING OFFICER (Mrs. Hagan). The Senator from Connecticut.
  Mr. DODD. Madam President, I recognize my friend and colleague from 
Delaware.
  The PRESIDING OFFICER. The Senator from Delaware.
  Mr. KAUFMAN. Madam President, I rise today to speak on the Dodd-Frank 
bill. I must start by expressing my awe--that old expression from Iraq, 
``shock and awe''--at what Chairman Dodd has been able to do during 
this session of the Congress. I have been around this place since 1973, 
and I genuinely cannot think of an example where an individual Senator 
ever participated in passing three bills in one Congress of the 
magnitude of the health care bill, the credit card reform bill, and now 
the Dodd-Frank bill. If there is a legislative hall of fame, there is a 
spot for Chris Dodd in that hall of fame.

[[Page S5885]]

  I am going to speak today about areas where I don't agree with this 
bill. Anyone who has followed my speeches on the floor would recognize 
that I have a difference of opinion on a number of issues. However, I 
wish to make it clear from the beginning--and I will raise it again in 
my speech--to the extent this bill doesn't reach where I want it to 
reach, the responsibility lies on my friends--and I truly mean my 
friends--and colleagues on the other side of the aisle.
  Time and again, vote after vote, they voted as a block to block 
meaningful reform on many issues. We can talk about the Brown-Kaufman 
amendment to break up the banks or we can talk about the maneuvers that 
were done on the Brownback bill so we never got a vote, and on Levin-
Merkley. So as I give this speech today, the reason we didn't get the 
things I wanted in this bill is because 41 Republicans, time and time 
and time again--when there was a vote up they could have changed the 
way we do things; they could have instituted the kinds of reforms I 
wanted in this bill--voted against it.
  So Chairman Dodd was left with the problem of, How do we get the 
votes together to pass the bill? It is essential that we pass a bill, 
and a good bill, and we did, and I am voting for it. But it could have 
been, in my opinion, a better bill if several votes had gone the other 
way.
  After months of careful consideration, landmark financial reform 
legislation moves toward final passage. While this bill is a vast 
improvement over the existing regulatory structure, I believe it should 
go further with respect to erecting statutory rules that address the 
fundamental problem of too big to fail.
  Anyone who has heard my speeches on the Senate floor starting 4 or 5 
months ago will understand my position on that. I made it abundantly 
clear. I will support the conference report, but I do so with 
reservations about a missed opportunity to enact meaningful reforms 
that would prevent another financial crisis. But as I said before, 
ultimately, given the makeup of the Senate and the requirement for 60 
votes and the intransigence on the other side of the aisle, this was 
the best bill that could pass.
  For those who wish the bill were stronger, let there be no confusion 
about where the blame lies. It is because almost every Senator on the 
other side of the aisle did everything they could to stall, delay, and 
oppose Wall Street reform.
  To be sure, the bill that has come out of conference includes some 
extremely important reforms. It establishes an independent Consumer 
Financial Protection Bureau with strong and autonomous rulemaking 
authority and the ability to enforce those rules for large banks and 
nonbank entities such as payday lenders and mortgage finance companies. 
In addition, it requires electronic trading and centralized clearing of 
standardized over-the-counter derivatives contracts, as well as more 
robust collateral margin requirements. The bill's inclusion of the 
Kanjorski provision will give regulators the explicit authority to 
break up megabanks that pose a ``grave threat'' to financial stability.
  I was pleased that the bill includes a provision I helped develop to 
give regulators enhanced tools and powers to pursue financial fraud. 
Through the Collins provision, the bill also establishes minimum 
leverage and risk-based capital requirements for bank holding companies 
and systemically risky nonbank institutions that are at least as 
stringent as those that apply to insured depository institutions, an 
important reform in this bill.
  In light of the failures of past international capital accords, this 
requirement will set a much-needed floor on how low capital can drop in 
the upcoming Basel III negotiations on capital requirements. It will 
also ensure that the capital base of megabanks is not adulterated with 
debt that masquerades as equity capital.
  That being said, unfortunately, I believe the bill suffers from two 
major problems. First, the bill delegates too much authority to the 
regulators. I have been around the Senate for 37 years. As I said on 
the Senate floor on February 4 of this year and in several speeches 
since then, I know that many times laws are not written with hard and 
clear lines. Laws are a product of legislative compromise, which often 
means they are vague and ambiguous. We often justify our vagueness by 
saying the regulators to whom we grant statutory authority are in a 
better position than we are to write the rules--and then to apply those 
regulatory rules on a case-by-case basis. But, as I have said, this was 
not one of those times. This was a time for Congress to draw hard lines 
that get directly at the structural problems that afflict Wall Street 
and our largest banks.
  Despite repeated urging from me and others to pass laws that would 
help regulators to succeed, Congress largely has decided instead to 
punt decisions to the regulators, saddling them with a mountain of 
rulemakings and studies. The law firm Davis Polk has estimated that the 
SEC alone must undertake close to 100 rulemakings and more than a dozen 
studies. Indeed, Congress has so choked the agencies with rulemakings 
and studies, the totality of the burden threatens to undermine the very 
ability of the agencies to accomplish their ongoing everyday mission. I 
for one urge the agencies carefully to triage these required 
rulemakings and studies, establish a hierarchy of priorities, and 
ensure that the agencies do not shift all resources to new rules meant 
to address old problems to such a degree that they fail to stay on top 
of current and growing problems. I will have more to say on this 
subject in a future speech.
  Second, the legislation does not go far enough in addressing the 
fundamental problem of ``too big to fail.'' Instead of erecting 
enduring statutory walls as we did in the 1930s, the bill invests the 
same regulators who failed to prevent the financial crisis with 
additional discretion and relies upon a resolution regime to 
successfully unwind complex and interconnected mega-banks engaged 
across the globe. I am also disappointed that key reform provisions 
like the Volcker Rule and the Lincoln swaps dealers spin-off provision 
were scaled back in conference.
  The bill mainly places its faith and trust in regulatory discretion 
and on international agreements on bank capital requirements and 
supervision. After decades of deregulation and industry self-
regulation, it is incumbent upon the regulators now to reassert 
themselves and establish rulemaking and supervisory frameworks that not 
only correct their glaring mistakes of the past, but also anticipate 
future problems, particularly risks to financial stability. 
Unfortunately, the early indications we are seeing out of the G-20 and 
so-called Basel III discussions are not encouraging, as critical 
reforms are already being watered down and pushed back in part because 
some foreign regulators carelessly refuse to heed the risks posed by 
their megabanks.
  The legislation also puts in place a resolution authority to deal 
with these institutions when they inevitably get into trouble. While 
such authority is absolutely necessary, it is not sufficient. That is 
because no matter how well Congress crafts a resolution mechanism, 
there can never be an orderly wind-down of a $2-trillion financial 
institution that has hundreds of billions of dollars of off-balance-
sheet assets, relies heavily on wholesale funding, and has more than a 
toehold in over 100 countries. Of course, since financial crises are 
macro events that will undoubtedly affect multiple megabanks 
simultaneously, resolution of these institutions will be enormously 
expensive. And until there is international agreement on resolution 
authority, it is probably unworkable.
  Given the history of financial regulatory failures and the enormous 
burden of rulemakings and studies with which the regulators are being 
tasked, Congress has a critical oversight responsibility. Congress 
first must ensure that the regulators have enough staff and resources 
at their disposal to follow through on their serious obligations. Just 
as important, Congress must monitor the regulatory phase of this bill's 
implementation closely to ensure that the regulators don't return to 
``business as usual'' when the experience of the most recent financial 
crisis fades into memory.
  How quickly we forget. Time and again, I have heard people speak as 
if there was no big financial crisis, saying: I have a bank in my 
hometown that is going to have a problem with this legislation. So we 
should let all the banks be free to do whatever they

[[Page S5886]]

want to do. We had a crisis here that practically destroyed the 
country, the world, and these people are bringing up anecdotal evidence 
to give these banks more responsibility and not go after the root 
cause.
  For example, in addition to granting great discretion to regulators 
on how they interpret the ban on proprietary trading at banks, the 
scaled-back Volcker Rule contains a large loophole that allows 
megabanks to continue to own, control and manage hedge funds and 
private equity funds under certain conditions. Most notably, it 
includes a de minimis exception that permits banks to invest up to 
three percent of Tier 1 capital in hedge funds and private equity funds 
so long as their investments don't constitute more than three percent 
ownership in the individual funds.
  The impact of a supposedly small three percent de minimis exception 
for investments in hedge funds and private equity firms has the 
potential to be massive. For example, a $2 trillion bank that has $100 
billion in Tier 1 capital would be able to invest $3 billion into hedge 
funds. Since that $3 billion could only constitute three percent 
ownership, it would need to be invested alongside at least $97 billion 
of funds from outside investors. The bank would therefore be able to 
manage $100 billion in hedge fund assets, a massive amount equal to the 
current size of the largest hedge funds in the world combined. What's 
more, that $100 billion in assets can be leveraged several times over 
through the use of borrowed funds and derivatives into overall 
exposures that could exceed a trillion dollars. And given the ambiguity 
of the legislative language, unless clarified by a rulemaking, some 
commentators have indicated that megabanks could potentially provide 
prime brokerage loans to hedge funds they partially own and run.
  Fortunately, the final bill does place costs on banks' de minimis 
investments in hedge funds and private equity funds. Specifically, the 
legislation requires a 100 percent capital charge on these proprietary 
investments, making them expensive for banks to hold. While this may be 
a helpful deterrent, I am concerned that it will not be enough of one, 
particularly when considering how lucrative and risky an activity it is 
for banks to run hedge funds and private equity funds.
  The overarching problem is that banks will continue to be able to 
offer and run--never mind, partially own--risky investment funds. Even 
though the scaled-back Volcker Rule includes a ``no bailout'' 
provision, I have concerns about the credibility of that edict. Under 
any circumstance, the failure of a massive hedge fund run by a megabank 
would pose serious reputational and financial risks to that 
institution.
  Just look at what happened when the structured investment vehicles, 
or SIVs, of Citigroup and other megabanks began to falter. Because of 
the reputational consequences of liquidating these funds and allowing 
them to default on their funding obligations, they were bailed out by 
the megabanks that spawned them even though the SIVs themselves were 
generally separate, off-balance-sheet entities with no official backing 
from the banks.
  Finally, the strength of the core part of the Volcker Rule--the ban 
on proprietary trading--will depend greatly on the interpretation of 
the regulators. They will ultimately be the arbiter of whether broad 
statutory exceptions for ``market making'' or ``risk-mitigating 
hedging'' or ``purchases'' or ``sales'' of securities on ``behalf of 
customers'' are allowed to swallow the putative prohibition. I 
therefore urge the regulators to construe narrowly those activities 
that constitute exceptions to proprietary trading to ensure that the 
Volcker Rule has some teeth in it.
  Senator Lincoln's original swap dealer spin-off provision would have 
prohibited banks with swap dealers from receiving emergency assistance 
from the Federal Reserve or FDIC. By essentially forcing megabanks to 
spin off their swap dealers into an affiliate or separate company, this 
section would have helped restore the wall between the government-
guaranteed part of the financial system and those financial entities 
that remain free to take on greater risk. It would also have forced 
derivatives dealers to be adequately capitalized.
  While the final bill includes the Lincoln provision, it limits its 
application to derivatives that reference assets that are permissible 
for banks to hold and invest in under the National Bank Act. Since that 
exception covers interest rates, foreign exchange and other swaps, it 
ultimately exempts close to 90 percent of the over-the-counter 
derivatives market. Regulators must therefore reduce counterparty 
exposures by requiring the vast majority of derivatives contracts to be 
cleared and calibrate carefully the amount of capital that bank 
derivatives dealers must maintain. Only then can we be sure we never 
again face a meltdown caused by excessively leveraged derivatives 
exposure that no regulator helps to keep in check.
  The financial reform bill places enormous responsibilities and 
discretion into the hands of the regulators. Its ultimate success or 
failure will depend on the actions and follow-through of these 
regulators for many years to come.
  One of my main concerns is, if we elected another President who 
believed we should not have regulators and regulation, they would again 
have the ability to do what they did to cause a meltdown.
  It is estimated that various Federal agencies will be charged with 
writing over 200 rulemakings and dozens of studies. Many of the same 
regulators who failed in the run-up to the last crisis will once again 
be given the solemn task of safeguarding our financial stability. Like 
many others, I am concerned whether they have the capacity and 
wherewithal to succeed in this endeavor.
  I repeat again, Congress has an important role to play in overseeing 
the enormous regulatory process that will ensue following the bill's 
enactment. The American people, for that matter, must stay focused on 
these issues, if just to help ensure that Congress indeed will fulfill 
its oversight duty and its duty to intervene if the regulators fail. 
Likewise, although I will be leaving the Senate in November, I will be 
watching closely to see how the regulators follow through on the 
enormous responsibilities they are being handed.
  Let us not forget why reform is so necessary and important. After 
years of Wall Street malfeasance and the systematic dismantling of our 
regulatory structure, our financial system went into cardiac arrest and 
our economy nearly fell into the abyss. Wall Street, which had grown 
out of control on leverage and financial gimmickry, blew up. More than 
8 million jobs were wiped out; millions more have lost their homes. We 
spent trillions of dollars in monetary easing and emergency measures to 
avert the wholesale failure of many of our megabanks. Not surprisingly, 
we continue to feel the aftershocks of the worst financial crisis since 
the Great Depression.
  Every single thing you look at, almost without exception, when you 
read our newspapers, is related to our present economic situation, 
which was caused by lack of regulatory action on Wall Street.
  The banks are not lending. Fed Chairman Bernanke just days ago urged 
them to do more for small businesses. Companies and consumers alike 
remain shaken in their confidence. And despite dramatic stimulus 
measures, the economic recovery has been slow and tentative. Many of 
the opponents of Wall Street reform would like to make the dubious 
claim that the recovery is being held back by uncertainty about future 
regulations and taxes. Can you believe that? In reality, it is being 
held back by the financial shock and the fact that we are still in a 
period of financial instability and undergoing an excruciating process 
of deleveraging. Even now it is unclear whether a European banking 
crisis based on their holdings of sovereign debt will continue to 
impede that recovery.
  It is also being caused by the fact that Americans are losing faith 
in the credibility of our markets. Who wouldn't, after what has 
happened?
  I think it has been an important factor in our present hiccup--
hopefully, it was a hiccup and not a double dip.
  It is, therefore, imperative that we build a financial system on a 
firmer foundation. The American economy cannot succeed--cannot 
succeed--unless we restore and maintain financial stability--not only 
restore and maintain financial stability but maintain

[[Page S5887]]

the credibility of our financial system. We simply cannot afford 
another financial crisis or continued financial instability if the 
American economy is to succeed in the coming decades. Getting financial 
regulation right and maintaining it for years to come should be one of 
this Nation's highest priorities because the price of failure is far 
too high.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Connecticut.
  Mr. DODD. Madam President, I thank my colleague from Delaware. He 
highlighted the difficulty in passing legislation. There are those who 
think it goes too far and those who think it does not go far enough. We 
do not write a bill on our own. There are 100 of us in this Chamber and 
435 in the other. There are stakeholders, the administration--all sorts 
of people we deal with on these matters. What we try to do is fashion 
the best proposal we can that moves us forward and addresses the 
underlying causes, as we tried to with this bill.
  I appreciate the Senator's points that were raised during the debate 
and discussion. We tried to accommodate them where we could in 
fashioning legislation. It is always a difficult process. You do not 
get to write your own bill. You can write your own bill and introduce 
it, but ultimately, for it to become law requires cooperation. We had 
that cooperation. I appreciate his involvement very much.
  The PRESIDING OFFICER. The Senator from Delaware.
  Mr. KAUFMAN. Madam President, I just laid it out. I taught a course 
on Congress in law school for 20 years. I say this in all sincerity: 
Houdini could not have gotten through this process. Really and truly, 
when one looks at it, Houdini could not have gotten through this 
process with a bill.
  I try very hard to be bipartisan in everything I do, and I try to 
speak well of my colleagues because I really do like every one of my 
colleagues on the other side. That is not hyperbole. But when we start 
out with 41 Senators bound and determined to slow down, delay, stop, 
and block, it makes the job the Senator from Connecticut has done even 
more incredible. And then we have to get 60 votes on anything of 
substance. Then we have to go over to the House side. And God bless our 
friends on the House side. When I talk with them, they just look over 
here and cannot believe we ever get anything done.
  Getting this bill done, getting it through the Senate, dealing with 
all the stakeholders, dealing with the administration, dealing with the 
folks on the House side, and, with all due respect, doing it three 
times in one Congress, is definitely a Hall of Fame performance.
  I thank the Senator again.
  Mr. DODD. Madam President, my colleague talked about 41. There are a 
number of Republicans who played a very critical and supportive role on 
this bill. I do not want the record to persist in suggesting that was 
not the case. Even people on the other side who ended up not voting for 
the bill--at least have not so far--added substantially to the value of 
this bill. In some cases, they might not want to acknowledge that, but 
they did.
  In the case of our two colleagues from Maine and our colleague from 
Massachusetts, they have taken an awful lot of abuse in the last number 
of weeks because they worked with us on the bill and made significant 
contributions. While they do not agree with every dotted ``i'' and 
crossed ``t,'' as I do not with this bill, they decided our country 
would be better off with the passage of this legislation than not.
  I do not want the record to be uncorrected when it comes to the 
number of people, including those three in particular, who will, I 
presume, continue to take some abuse from others because they did not 
toe the party line, nor have they on repeated occasions. They have 
acted as U.S. Senators, which is our first responsibility. I know what 
that feels like. I have been there on numerous occasions in my 30 
years. Several times, I was the only Democrat to vote with Republicans 
on substantive matters. It is a lonely moment. I can tell my colleague 
what happens. It is painful, and you get those long looks from your 
colleagues. It is uncomfortable, to put it mildly. I will also tell my 
colleague that some of the proudest moments a colleague will have when 
they serve here is when they make those decisions and do so for the 
right reasons.
  While I am deeply grateful to my Democratic colleagues, many of whom 
had concerns about the bill, as my friend from Delaware did, and have 
been supportive all the way through, I guess there is a bit of the 
prodigal son--prodigal daughter in the case of our colleagues from 
Maine and prodigal son in the case of our colleague from 
Massachusetts--when they decided to stand up and help us get a bill 
done despite the criticism they have received. Everyone who has been 
supportive and helpful deserves credit, but I think those who were 
willing to take an awful lot of abuse in the process of doing so 
deserve commendation.
  I did not want to let that number stand--41--because it implies 
somehow there were people on the other side who were not helpful, and 
they were, including people who did not vote for the bill who were 
helpful as well.
  Mr. KAUFMAN. Madam President, I totally agree with the Senator. It is 
oversimple. I know the Senator from Connecticut received a lot of 
support from the Republican side. I know how difficult it is to be the 
person standing in your caucus when everyone in your caucus wants to 
vote another way. I appreciate that.
  What is amazing to me is what passed was what the three of them would 
sign on to or others would sign on to. The idea that the Senator came 
with a bill--every one of my concerns I raised today, if we had gotten 
some help from the other side might have gone another way. But they 
were not going to go another way with the group we had.
  I could not agree with Senator Dodd more. I think it is easy to stand 
up in our caucus and be for this bill. I think what they did was truly 
courageous. But I also think that on every major issue, to have to 
figure out how we get 60 votes is a special, difficult problem. It is 
not like a swan dive. It is not, like they do in the Olympics, a double 
summersault. Putting all those things together is a triple summersault 
in the pike position. That is the point I want to make--the difficulty 
of getting a bill when we need to get 60 votes on every issue and there 
is a constant pressure on the other side for all to vote together one 
way.
  Mr. DODD. Madam President, I see our colleague from New Hampshire is 
here. I will save this for a later debate, but I know there is talk 
about changing the rules of the Senate because of the frustration 
Senators feel. I will make, in my waning hours here, as strong a plea 
as I can to not succumb to the temptation to change the institution 
because of the current frustrations people feel. There is a reason this 
institution exists and has the rules it does. All of us one day are in 
the minority or majority. The fact that some may abuse the rules, as 
has happened here without any question, ought not to be a justification 
for fundamentally changing them. There are ways to deal with the 
problem without losing the essence of the Senate. He is no longer with 
us, but my seatmate, Robert C. Byrd, would speak for hours on end about 
the importance of not letting the vagaries of the moment dictate the 
long-term interests of the institution.
  I will leave that for another day, but I appreciate it.
  My colleague from New Hampshire is here.
  The PRESIDING OFFICER. The Senator from New Hampshire.
  Mrs. SHAHEEN. Madam President, I am pleased to join my colleague from 
Connecticut, Senator Chris Dodd, and be here on the floor this 
afternoon to talk about the financial regulatory reform bill that is 
pending.
  Before I begin my remarks, I wish to recognize Senator Dodd for his 
leadership and hard work in getting this conference report to the floor 
so that we can hopefully adopt it this afternoon. It is important 
because of what has happened in this country and what has happened in 
my State of New Hampshire.
  Over the past 2 years, people in New Hampshire and across the country 
have suffered the consequences of Wall Street's gambles. While we are 
seeing our economy in New Hampshire begin to rebound, which is thanks 
in no small part to the job creation that was spurred by the Recovery 
Act, it is critical that we act to prevent Wall

[[Page S5888]]

Street's risky, reckless behavior from ever again bringing our economy 
to its knees.
  We need to put in place reforms to stop Wall Street firms from 
growing so big and so interconnected that they can threaten our entire 
economy. We need to protect consumers from abusive practices and 
empower them to make sound financial decisions for their families. We 
need more transparency and regulation in the now shadowy markets where 
Wall Street executives and investment banks have made gambles. In those 
shadowy markets, the Wall Street firms got all the upside and American 
families got all the downside. We need to do everything we can to 
ensure that a financial crisis, such as the one we experienced in late 
2008, never happens again. We need to ensure that taxpayers will not be 
asked to bail out Wall Street. In short, we need to pass the strong 
Wall Street reform bill that is before us today.
  It is also important to note that while this bill requires Wall 
Street banks to be held more accountable, it does not unfairly burden 
community banks. Community banks did not cause the financial crisis, 
and they should not have to pay for Wall Street's reckless behavior. 
That is particularly important to us in New Hampshire, where community 
banks make a huge difference for our cities and towns. That is why I 
joined with Senator Snowe on her amendment to eliminate the 
unnecessary, burdensome requirement that community banks and credit 
unions collect and report on various data about their depositors.
  I also sponsored another bipartisan amendment, one to make large, 
riskier banks pay their fair share of FDIC premiums and lower 
assessments for community banks. Community bank lending is really the 
lifeblood of New Hampshire's economy. Every dollar community banks have 
to pay for Wall Street's mistakes is a dollar that could be going to 
extend credit to small businesses and to home and consumer loans to 
families.
  I also joined Senator Collins on her amendment to require Wall Street 
banks to follow the same capital and risk standards small depository 
banks must follow. This amendment will make the risky banks that led us 
into this financial crisis--banks such as Bear Stearns and Lehman 
Brothers--follow the same standards that already apply to small 
depository banks.
  This bill requires the big Wall Street banks to have adequate capital 
to prevent taxpayers from having to bail them out again.
  I am very pleased that those bipartisan amendments, which have 
strengthened the bill by protecting community banks, have been adopted. 
It speaks to the conversation Senator Dodd was having with Senator 
Kaufman earlier that this is a bill that has gotten broad support in 
this body and a lot of input that has made it better.
  I am glad we have been able to work in this bipartisan manner to 
craft a strong bill that reins in the reckless Wall Street conduct that 
brought us to the edge of financial disaster. It keeps community banks 
strong, and it protects consumers and taxpayers.
  I look forward to voting ``aye'' this afternoon when we get to the 
vote on the conference report.
  The PRESIDING OFFICER. The Senator from Connecticut.
  Mr. DODD. Madam President, briefly, I thank my colleague from New 
Hampshire. I see my other colleague from New Hampshire as well. It is a 
New Hampshire moment. I thank Senator Shaheen and our colleague from 
Maine, Senator Snowe, for working as they did on the community bank 
issues.
  I was pleased, as I noted yesterday, that the Independent Community 
Bankers Association, while not endorsing the entire bill but 
specifically on their issues involving community banks expressed strong 
support for this bill and how much stronger these banks are today as a 
result of our efforts than would be the case if we were to defeat the 
legislation. Their ability to compete with these larger banks has been 
enhanced tremendously by what we have done in this bill. If these 
provisions were not adopted, they would be back in a situation where 
there would be significant disadvantages for them under the current 
law.
  I am very grateful to Senator Shaheen and Senator Snowe and others 
who supported their efforts to strengthen the role of our community 
banks that play such a critical role. As the Senator from New Hampshire 
pointed out, they were never a source of the problems in the 
residential mortgage market at all. That deserves to be repeated over 
and over.
  I thank the Senator for her comments.
  Mr. JOHNSON. Madam President, Congress is now on the brink of passing 
a landmark deal on legislation to reform Wall Street and prevent 
another financial crisis like the one we faced nearly 2 years ago. This 
legislation is an important and long overdue measure that will help to 
safeguard the long-term stability of our economy.
  In the closing months of the Bush administration, our Nation faced an 
economic situation so dire that many feared our financial system was on 
the verge of collapse. Though we were able to avert such a collapse, 
the impact of the crisis spread across America, leaving few untouched.
  Virtually all of us have been impacted by the economic meltdown in 
some way: businesses shed jobs, workers' hours were cut, some folks had 
great difficulty making their mortgage payments when their pay was cut, 
small businesses lost customers and revenue in the downturn. South 
Dakota homeowners, regardless of whether they had a mortgage or owned 
their home outright, saw their equity drop, and most folks with 
investments for retirement or other long-term goals suffered losses 
either through the stock market plunge, bond market turbulence, or 
passbook savings interest rates that hovered near zero percent. Lending 
at our Nation's banks contracted, spending fell, and overall consumer 
confidence plummeted.
  Americans were rightly angry that while they were losing their homes, 
jobs, and long-term savings, they were also expected to foot the bill 
for the irresponsible actions of Wall Street CEOs. Their outrage only 
grew when these same CEOs continued collecting unprecedented bonuses--
presumably for their work in recklessly taking our Nation to the brink 
of collapse. Frankly, I share that anger.
  It is clear that our economy has not yet fully recovered, but in the 
last year and a half, Congress has dedicated itself to turning our 
economy around. We are now on the verge of passing historic legislation 
that creates better accountability and transparency for Wall Street and 
the financial sector.
  As a senior member of the Banking Committee, and a member of the 
conference committee, I have worked hard to identify the causes of the 
crisis and find the right solutions to address these causes. I have 
talked at length with South Dakotans of all backgrounds and political 
stripes to gain their perspective, and there are some things that get 
mentioned time and again: there were many causes for the meltdown, but 
gaps in regulation contributed to the problem; rules that applied to 
some financial companies but not all opened loopholes that bad actors 
could exploit; the lack of a system to monitor risks across the banking 
sector left taxpayers vulnerable; regulators were not very focused on 
looking out for consumers; and large Wall Street firms operated with 
little or no accountability to either their shareholders or their 
customers. In addition, it became clear we needed a system to unwind 
big financial firms like AIG, Lehman Brothers, and Bear Stearns in an 
orderly fashion and without taxpayer bailouts. Doing nothing is not an 
option, and I do not think anyone can say with a straight face that our 
current system of financial regulation works for America.
  While not perfect, the Wall Street reform measure does a great deal 
to address many of these problems. It creates a mechanism to monitor 
systemic risk in the financial sector, as well as regulating risky 
derivatives, credit default swaps and other complicated financial 
products that were not transparent and had previously gone unregulated. 
It affords consumers better rules governing the products they use and 
better information about those products by creating a consumer watchdog 
agency. Importantly, it also creates a way to unwind large financial 
firms without having to bail them out.
  Specifically, I want to mention two provisions. First, I am pleased 
that the conference committee accepted the

[[Page S5889]]

Carper-Bayh-Warner-Johnson amendment, which I strongly supported, 
regarding the preemption standard for State consumer financial laws. 
This amendment received strong bipartisan support on the Senate floor 
and passed by a vote of 80 to 18. One change made by the conference 
committee was to restate the preemption standard in a slightly 
different way, but it is clear that this legislation is codifying the 
preemption standard expressed by the U.S. Supreme Court in Barnett Bank 
of Marion County, N.A. v. Nelson, Florida Insurance Commissioner, 517 
U.S. 25 (1996) case. This will provide certainty to consumers and those 
that offer consumers financial products.
  Also, section 913 of the conference report reflects a compromise 
between the House and Senate provisions on the standard of care for 
brokers, dealers, and investment advisers. It includes the original 
study provisions passed by the Senate, together with additional areas 
of study requested by the House--a total of 13 separate considerations 
and a number of subparts, where we expect the SEC to thoroughly, 
objectively and without bias evaluate legal and regulatory standards, 
gaps, shortcomings and overlaps. We expect the SEC to conduct the study 
without prejudging its findings, conclusions, and recommendations and 
to solicit and consider public comment, as the statute requires. As 
Chairman Frank described the compromise when he presented it to the 
committee, section 913 does not immediately impose any new duties on 
brokers, dealers and investment advisers nor does it mandate any 
particular duty or outcome, but it gives the SEC, subsequent to the 
conclusion of the study, the authority to conduct a rulemaking on the 
standard of care, including the authority to impose a fiduciary duty. I 
think this is a strong compromise between the House and Senate 
positions.
  This bill gives financial institutions, regulators and consumers the 
right tools to make good decisions, and it also provides the right 
tools to prevent another crisis like the one we recently experienced. 
Many of the bill's provisions, including those mentioned previously, 
have bipartisan support; in fact, many of the core ideas incorporated 
into the bill originated from my Republican colleagues.
  Critics of this legislation have said that it tackles the wrong 
problems, hurts small banks and businesses, and burdens struggling 
financial institutions. I appreciate those points of view, but feel 
very confident in saying we have taken specific steps to ensure that 
small banks and businesses are not negatively affected, to make it more 
difficult for firms to take dangerous risks, and to strike the right 
balance between regulation and flexibility. But the bottom line is 
this: the kind of free-wheeling, self-regulating, anything goes 
environment that we had before the crisis is simply not an option.
  There are certainly provisions in this bill that I would have written 
differently as any of my colleagues would if we wrote this legislation 
ourselves. But that is not how the Senate and our legislative system 
works, and overall I think this conference report is very strong 
legislation. I look forward to its passage.
  There is no doubt that after the President signs this bill into law, 
there will be an important focus on implementing this legislation 
correctly, as well as continued oversight by Congress of the agencies 
and covered financial institutions, and efforts at international 
coordination with our counterparts in other countries. It is also 
likely that there may need to be corrections and adjustments to the 
bill in the future. That said, passage of this bill is important to our 
nation's economic recovery, and we must get it to the President's desk.
  Mrs. HAGAN. Madam President, I rise today to discuss the conference 
agreement on financial services regulatory reform and specifically an 
issue in section 619 of title VI, known as the Volcker rule. The 
section's limitations on financial organizations that own a depository 
institution from investing or sponsoring in hedge funds or investments 
in private equity to 3 percent of an organization's assets, in the 
aggregate, references ``tier 1 capital.''
  The term ``tier 1 capital'' is a concept currently applied strictly 
to banks and bank holding companies and consists of core capital, which 
includes equity capital and disclosed reserves. However, there are 
financial organizations subject to the Volcker rule's investment 
constraints that do not have a principal regulator that utilizes tier 1 
capital measurements to determine an entity's financial strength. In 
order to ensure a level playing field with traditional banks, I would 
hope the appropriate regulators would determine a suitable equivalent 
of tier 1 capital to determine the investment limit, while still 
satisfying the intent of the Volcker rule.
  I ask the regulators to make certain that these types of financial 
organizations will be subject to the Volcker rule in a manner that 
takes into account their unique structure.
  In addition, I am pleased that as part of the conference report that 
the Volcker language was modified to permit a banking entity to engage 
in a certain level of traditional asset management business, including 
the ability to sponsor and offer hedge and private equity funds. With 
that in mind, I wanted to clarify certain details around this 
authority.
  First, I was pleased to see that the Volcker Rule, as modified, will 
permit banking entities several years to bring their full range of 
activities into conformance with the new rule. In particular, section 
619(c)(2) ensures that the new investment restrictions under section 
619(d)(1)(G)(iii) and section 619(d)(4)--including the numerical 
limitations under section 619(d)(4)(B)(ii)--will only apply to a 
banking entity at the end of the period that is 2 years after the 
section's effective date. This date for the regulators to begin 
applying the new rules can also be extended into the future for up to 
three 1-year periods under section 619(c)(2) and can also separately be 
extended for illiquid funds with contractual commitments as of May 1, 
2010, under section 619(c)(3), on a one-time basis for up to 5 years. 
Only after all of these time periods and extensions have run will any 
of the limitations under section 619(d)(1)(G) and section 619(d)(4) be 
applied by regulators.
  Second, as an added protection, section 619(f) applies sections 23A 
and 23B of the Federal Reserve Act to transactions between all of a 
banking entity's affiliates and hedge or private equity funds where the 
banking entity organizes, offers, serves as an investment manager, 
investment adviser, or sponsor of such funds under section 619(d). 
These restrictions are also applied to transactions between a banking 
entity's affiliates and other funds that are ``controlled'' by a hedge 
or private equity fund permitted for the banking entity under 619(d). 
Importantly, these 23A and 23B restrictions do not apply to funds not 
``controlled'' by funds permitted for the banking entity under section 
619(d), and it should also be clear that under section 619 there are no 
new restrictions or limitations of any type placed on the portfolio 
investments of any hedge or private equity fund permitted for a banking 
entity under section 619.
  Third, as a condition of sponsorship, section 619(d)(1)(G)(v) 
requires that a banking entity does not, directly or indirectly, 
guarantee or assume or otherwise insure the obligations or performance 
of any sponsored hedge or private equity fund or of any other hedge or 
private equity fund in which the sponsored fund invests. While this 
restricts guarantees by the banking entity as well as the insuring of 
obligation or performance, it does not limit other normal banking 
relations with funds merely due to a noncontrol investment by a fund 
sponsored by the banking entity. As described above, section 619(f) 
limits transactions under 23A and 23B of the Federal Reserve Act with a 
fund ``controlled'' by the banking entity or a fund sponsored by the 
banking entity. However, 619(f) does not limit in any manner 
transactions and normal banking relationships with a fund not 
``controlled'' by the banking entity or a fund sponsored by the banking 
entity.
  Finally, section 619(d)(4)(I) permits certain banking entities to 
operate hedge and private equity funds outside of the United States 
provided that no ownership interest in any hedge or private equity fund 
is offered for sale or sold to a U.S. resident. For consistency's sake, 
I would expect that, apart from the U.S. marketing restrictions, these 
provisions will be applied by the

[[Page S5890]]

regulators in conformity with and incorporating the Federal Reserve's 
current precedents, rulings, positions, and practices under sections 
4(c)(9) and 4(c)(13) of the Bank Holding Company Act so as to provide 
greater certainty and utilize the established legal framework for funds 
operated by bank holding companies outside of the United States.
  The PRESIDING OFFICER. The Senator from New Hampshire.
  Mr. GREGG. Madam President, let me begin by thanking the Senator from 
Connecticut and congratulating him. He has been pretty effective in his 
last year in the Senate. He got a lot of stuff moving and a lot of 
stuff through. And I have not agreed with all of it, by the way. Most 
importantly, he has done it in a fair and balanced way, always with a 
sense of humor and an openness and willingness to listen to those with 
whom he may not agree entirely and allow us to participate at the table 
in discussions about the problems at the very beginning of the process 
in a very substantial way. So I thank him for his courtesy and for the 
way he runs the committee and the way he ran the HELP Committee when he 
succeeded to that leadership on the unfortunate passing of Senator 
Kennedy. It has been a pleasure to serve with him on this bill and on 
some very significant issues as we tried to work through them.

  I have reservations about this bill--they are more than reservations. 
I, obviously, believe the bill doesn't get us to where we need to go. 
When we started on this effort, our purpose was, in the beginning, 
twofold: First, we wanted to make sure we could do everything we could 
to build into the system of regulatory atmosphere and the marketplace 
the brakes and the ability to avoid another systemic meltdown of the 
type we had in late 2008, which was a traumatic event.
  Nobody should underestimate how significant the events of late 2008 
were. If action had not been taken under the TARP proposal, and under 
the leadership of President Bush, Secretary Paulson, and then President 
Obama and Secretary Geithner, this country would have gone into a much 
more severe economic situation--probably a depression. Secretary 
Paulson once estimated the unemployment rate would have gone to 25 
percent. The simple fact is the entire banking system would have 
probably imploded--most likely imploded--and certainly Main Street 
America would have been put in dire straits.
  But action was taken. It was difficult action. We are still hearing 
about the ramifications of it, but it was the right action, and it has 
led to a stabilization of the financial industry. But we never want to 
have to see that happen again. We never want to have to go through that 
type of trauma again as a nation, where our entire financial community 
is teetering. So the purpose of this bill should be to put in place a 
series of initiatives which will hopefully mute that type of potential 
for another event of a systemic meltdown.
  The second purpose of this bill--and it is an equally important 
purpose--is that we not do something that harms one of the unique 
strengths and characteristics of our Nation, where if you are an 
entrepreneur and have an idea and are willing to take a risk and try to 
create jobs, you can get credit and capital reasonably easily compared 
to the rest of the world. That has been the engine of the economic 
prosperity of our Nation--the availability of credit and capital, 
reasonably priced and reasonably available to entrepreneurs in our 
Nation.
  Those should have been our two goals. If we match this bill to those 
goals, does it meet the test of meeting those goals? Unfortunately, I 
don't think it does. There are some very positive things in the bill. 
The resolution authority is a good product in this bill, and it will, 
in my opinion--though I know there is a lot of discussion about this--
pretty much bring an end to the concept of too big to fail.
  If an institution gets overleveraged to a point where it is no longer 
sustainable, and it is a systemic risk institution, it is going to be 
collapsed. The stockholders will be wiped out, the unsecured bond 
holders will be wiped out, and the institution will be resolved under 
this bill.
  That is positive because we do not want to send to the markets a 
signal that the American taxpayer is going to stand behind institutions 
which are simply large. That perverts capital in the markets, and it 
perverts flow of economic activity in the markets when people think 
there is that sort of guarantee standing behind certain institutions in 
this country. And I think progress is made in this bill on the issue of 
resolution.
  But, unfortunately, in a number of other areas, the opportunity to do 
something constructive was not accomplished. In fact, in my opinion, 
there will be results from this bill which will cause us to see a 
negative effect from this bill. The most negative effects I think will 
occur from this bill lie in two areas. First, in the area of the 
formation of credit.
  It is very obvious that under this bill there is going to be a very 
significant contraction of credit in this country as we head into the 
next year, 2 years, maybe even 3 years. We are in a tough fiscal time 
right now. It is still very difficult on Main Street America to get 
credit. The economy is slow. We should not be passing a bill which is 
going to significantly dampen down credit, but it will. This bill will. 
It will for three reasons:
  First, the derivatives language in this bill is not well thought out. 
It just isn't. Most people don't understand what derivatives are, but 
let's describe them as the grease that gets credit going in this 
country and everywhere. It is basically insurance products that allow 
people to do business and make sure they can insure over the risks that 
they have in a business. This bill creates a new regime for how we 
handle derivatives in this country.
  Our goal should have been to make derivatives more transparent and 
sounder. That could have been done easily by making sure most 
derivatives were on over-the-counter exchanges--went through 
clearinghouses I mean, and had adequate margins behind them, adequate 
liquidity behind them, and were reported immediately to the credit 
reporting agencies as to what they were doing. It didn't involve a lot 
of complications, just changing the rules of the road. Instead of doing 
that, we have changed the entire process. In changing the entire 
process, we are basically going to contract significantly the 
availability of these products to basically fund and to be the engine 
or the grease or the lubricant for the ability of a lot of American 
businesses to do business.
  End users in this country who use derivatives are going to find it 
very hard to have an exemption. They are basically going to have to put 
up capital, put up margin--something they do not do today on commercial 
derivative products--and that is going to cause them to contract their 
business. They will have to contract their business or they are going 
to have to go overseas. Believe me, there is a vibrant market in 
derivatives overseas. They will go to London, and this business will 
end up offshore.
  Then we have this push to put everything on an exchange. Well, there 
are a lot of derivatives that obviously should go through 
clearinghouses but are too customized to go on exchanges, and we are 
going to end up inevitably with a contraction in the derivatives market 
as a result.
  Then we have the swap desk initiative, which was simply a punitive 
exercise, in my opinion. It is going to accomplish virtually nothing in 
the area of making the system sounder or more stable. But what it will 
do is move a large section of derivative activity--especially the CDS 
markets--offshore. They will go offshore because they will not be done 
here any longer. Banks and financial houses which historically have 
written these instruments are not going to put up the capital to write 
them because they don't get a return that makes it worth it to them.
  I guarantee we are going to see a massive contraction in a number of 
derivatives markets as a result of this swap desk initiative, which was 
more a political initiative than a substantive initiative, and which is 
counterproductive. It is a ``cut off your nose to spite your face'' 
initiative, and it will move overseas a lot of the products we do here 
and make it harder for Americans to be competitive--especially for 
financial services industries to be competitive--in the United States. 
So that will cause a contraction and a fairly big one.

[[Page S5891]]

  The estimates are that the contraction may be as high as $\3/4\ 
trillion. That is a lot of credit taken out of the system. On top of 
that, there is the issue of the new capital rules in this bill.
  It isn't constructive for the Congress to set arbitrary capital 
rules. That should be left to the regulators. But this bill pretty much 
does that. As a result, a lot of the regional banks, the middle-sized 
banks--the larger banks would not be affected too much--will find they 
are under tremendous pressure as their tier I capital has to be 
restructured relative to trust preferred stock.
  This is not a good idea because, as a practical matter, we will again 
cause a contraction in the market of capital--of credit. As banks grow 
their capital, they will have to contract credit. When a bank has to 
get money back in order to build its capital position up, it doesn't go 
to its bad loans because the bad loans aren't performing. It goes to 
its good loans, and it doesn't lend to them. Or it says: We are going 
to draw down your line of credit, because that is where they can get 
capital. That is what will happen, and we will see capital contract 
there.
  On top of that, we have the Volcker rule. The concept is a very good 
idea. We should never have banks using insured deposits to do their 
proprietary activity. But straightening out what this Volcker rule 
means will take a while. It may be a year or two before anybody can 
sort out what it means and before the regulations come down that define 
it. So there will be a period of uncertainty, and that uncertainty 
means less credit available.
  Of course, this is another situation where the international banks 
are the winners and the domestic banks are the losers because the 
international banks will be able to go and do the same business--the 
proprietary trade--in London, if they are based in London or in 
Singapore, if they are based in Singapore or Tokyo, if they are based 
in Tokyo. But the American banks they compete with aren't going to be 
able to do it. So that makes no sense at all.
  But as a practical matter, that is what this bill does. So we will 
end up again with a tentativeness in the markets as to what they are 
supposed to be doing and what they can do in the area relative to the 
Volcker rule, and this will end up creating further credit 
contractions.
  So my guess is, when we add it all together, this bill will lead to a 
credit contraction of probably $1 trillion or more in our economy. What 
does that translate into? It translates into fewer jobs and less 
economic activity. It didn't have to happen this way. This could have 
been done in a way that would have been clearer, where the clarity 
would have been greater, and where we would not have had to take 
arbitrary action which was more political than substantive to address 
what problems in the industry did exist and should have been addressed.
  Another area of concern, of course, is this consumer agency. Consumer 
protection is critical. We all agree to that. What we proposed on our 
side of the aisle was that we link consumer protection and safety and 
soundness at the same level of responsibility and the same level of 
authority within the entire bank regulatory system so that the 
prudential regulator--whether it is the Fed or the Office of the 
Comptroller--when they go out to regulate a bank and check on it for 
safety and soundness--or the FDIC--they, at the same time, have the 
same standard of importance placed on making sure that the consumer is 
being protected in the way that bank deals with the consumers. That is 
the way it should be done. The two should be linked because the 
regulator that regulates the bank for safety and soundness is the 
logical regulator to regulate the bank to make sure it is complying 
with consumers' needs.
  But this bill sets up this brandnew agency, which it calls consumer 
protection, but it will not be at all, in my opinion. It will be the 
agency for political correctness or correcting political justice or 
issues of political justice that somebody is concerned about. It is 
totally independent of everybody else. It doesn't answer to anyone 
except on a very limited and narrow way to the systemic risk council. 
It is a single person with an $850 million unoversighted revenue stream 
with no appropriations. Basically, the person just gets the money and 
can go off and do whatever they want. There is no relationship between 
this person and the prudential regulator. So what we will have is an 
individual who may get on a cause of social justice and say that XYZ 
group isn't getting enough loans, and they go out to the banks and say: 
You have to send XYZ group more loans.

  We might have the bank regulator over here saying to the local banks, 
the regional banks: You can't lend to XYZ group because we know they 
are not going to pay you back or they will not pay you back at a rate 
that is reasonable. So we are going to have this inherent conflict.
  Now, what will be the result of that? The banks will probably have to 
lend to the XYZ group, which means the people borrowing from that bank 
who pay their loans back will have to pay more because the bank will 
have to make up for the loss of revenues. As a result, the cost of 
credit will go up, especially for individuals who are responsible and 
paying down their debts and paying for their credit--paying back their 
loans. We are going to end up with layers and layers of conflicting 
regulation which will cost the banking community money--a significant 
amount of unnecessary money.
  Who pays for that? Well, the consumer pays for it. Clearly, that gets 
passed through. This is one of those Rube Goldberg ideas that can only 
come out of a government entity. They used to say: You know, the 
government produces a camel when it is supposed to be producing a 
horse.
  There is just a disconnect between the reality of what we are 
supposed to be doing in the area of producing effective regulation 
relative to protecting consumers and what this bill ends up finally 
doing.
  I would not be here to oversee it or participate in it. In fact, 
nobody gets to oversee it, by the way. This consumer protection agency 
is not responsible to the Banking Committee of the Senate or the 
Banking Committee of the House. It is not responsible to the Fed. This 
person is a true czar.
  The term ``czar'' is thrown around here a lot, but this person is a 
true czar in the area of consumer activity. I suspect we will see that 
this agency becomes a very controversial agency, with a very political 
social justice type agenda, not an agenda which is aimed at primarily 
protecting consumers.
  So that is a big problem with this bill, and there are a lot of other 
issues with this bill. At the margin, the issue of how we restructure 
the regulatory regimes is of some concern, the whole question of how 
stockholders' rights in this bill--and probably not relevant to the 
banking issue so much--could have been improved on. The bill overall 
could have been a much better product. But the primary concern I have 
goes back to this issue of what was the original purpose--to protect 
systemic risk in the outyears and make sure we continue to have a 
strong and vibrant credit market for Americans who want to take risks 
and create jobs.

  Two major issues were totally ignored in the bill which would address 
that question: What drove the event of this meltdown? What caused this 
financial downturn? It was the real estate market and the way it was 
being lent into. Two things were the basic engines of that problem, 
that were government controlled. There were a lot of things which 
caused it, but the two things which the government controlled were, No. 
1, underwriting standards. Basically we divorced underwriting standards 
from the issue of whether a person got a loan, so loans were being made 
on assets which could not cover the cost of the loan. It was presumed 
the asset was going to appreciate, a home was always going to 
appreciate in these communities and therefore they could loan at 100 
percent of the value of the home or 105 percent of the value and still 
have a safe loan. That was a foolish assumption, to say the least.
  Second, we didn't look at whether the person could pay the loans back 
when these loans were made at zero interest for a year or 2 years. But 
then they reset, these loans reset at a fairly reasonable or sometimes 
very unreasonable interest rate and nobody looked at whether the person 
could pay them back.
  These loans were being made not for the purposes of actually 
recovering the

[[Page S5892]]

loans. That was not the reason these loans were being made. These 
subprime loans were being made because there were fees on the loans and 
the people making the loans were getting the fees. There was a whole 
cottage industry of people down in Miami who had just gotten out of 
prison who figured this out while they were in prison and they 
developed an entire cottage industry of former prisoners who had been 
released, legally, and actually went back into the loan business and 
were making these loans and getting the fees.
  Then what aggravated it--first what aggravated it was the 
underwriting standards, but then it was that these loans got 
securitized. They got picked up by Freddie Mac and Fannie Mae, with the 
understanding--it was implicit but it was obvious, as we found out--
that Fannie Mae and Freddie Mac would essentially insure these loans. 
So if you bought one of these securitized loans, Fannie Mae and Freddie 
Mac would be standing behind it even though the loans were not viable.
  This bill ignores both those issues. It has very marginal language on 
the issue of underwriting. It doesn't get us back to standards which 
would basically protect us from overly aggressive underwriting.
  People say Canada did not have a problem, Australia didn't have a 
problem. Why didn't they have a problem? They didn't have a problem 
because they required people who were borrowing to put money down and 
they required that people who were borrowing actually be able to pay 
the money back. It seems like a perfectly reasonable thing to require, 
but this bill ignores it.
  Second, this bill does nothing about Fannie or Freddie--nothing. Talk 
about ignoring the elephant in the room, this is the whole herd of 
elephants in the room. The American taxpayer today is on the hook for 
something like $500 billion to $1 trillion. The estimates vary. Some 
people say it is even higher than that--the American taxpayer, for bad 
loans, securitized by Fannie and Freddie. This bill says nothing. It is 
as if this problem doesn't exist. It is as if this problem doesn't 
exist. Not only was it one of the primary drivers of the financial 
meltdown but it is one of the biggest problems we have going forward. 
The administration says we will do it next year. Well, if you do a 
financial reform bill without Fannie and Freddie, you essentially are 
not doing a financial reform bill at all. I apply the same to the issue 
of underwriting.
  In my opinion, this bill has some pluses. I know this was worked very 
hard and I admire the efforts of the Senator from Connecticut and 
actually the chairman in the House, Congressman Frank from 
Massachusetts. But the negatives of this bill unfortunately are too 
significant to ignore, especially in the area of the short-term credit 
contraction that is going to occur, the poorly structured derivatives 
language, the Consumer Protection Agency--which I think is going to end 
up being counterproductive to consumers--and the failure to take up the 
Freddie and Fannie issue, and the failure to do stronger underwriting 
standards.
  For that reason, I remain opposed to this bill. I understand it is 
going to pass. I hope some of my concerns do not come to fruition 
because, if they do, unfortunately this economy is going to be slowed 
and our Nation will be less viable economically. But I am afraid they 
will come to fruition.
  I yield the floor.
  The PRESIDING OFFICER (Mr. Burris). The Senator from Connecticut is 
recognized
  Mr. DODD. I see my other colleagues here, including Senator Specter 
who wants to be heard, but I want to address my colleague from New 
Hampshire because we are both going to be walking out of this Chamber 
in about 5 months. I thank him for his work going back to 20-some-odd 
months ago when we were involved in the critical weeks and days in 
September and October. Judd Gregg was invaluable putting together a 
moment here while, not terribly popular, I think saved the economy and 
the country. I will not address all his concerns here. We have a 
different point of view on the issues he raised. They are not 
illegitimate issues. We think we addressed them properly. He has a 
different view, and I respect that. I appreciate his work and that of 
his staff on this bill. He made a significant contribution to this 
effort and I thank him for it.
  I see my colleague from Pennsylvania here and I yield the floor.
  The PRESIDING OFFICER. The Senator from Pennsylvania is recognized.
  Mr. SPECTER. Mr. President, at the outset I wish to ascertain with 
precision that I have 20 minutes, as had been arranged with the floor 
monitors. I had looked for 30 but I ask consent I may speak for up to 
20 minutes now.
  The PRESIDING OFFICER. Is there objection?
  Mr. DODD. Reserving the right to object, I want to be clear so my 
colleague will understand this. I had a sheet of paper in front of me--
I do not have it in front of me now--with the order of those who sought 
time. I want to be careful, as my colleague from Pennsylvania will 
understand. We are going to vote at 2 o'clock. I want to be sure I can 
accommodate my colleagues.
  The PRESIDING OFFICER. Twenty-three minutes remains to the majority.
  Mr. DODD. I know Senator Conrad, chairman of the Budget Committee, 
has to be heard and it is critical to me he be heard on the budget 
point of order.
  Could you make it a little less than 20?
  Mr. SPECTER. I really cannot. I had started at 30 and 20 is tough. 
How early might I return for my 30 minutes?
  Mr. DODD. After 2 o'clock? Any point after----
  Mr. SPECTER. I ask unanimous consent I may have 30 minutes when the 
two votes which are scheduled for 2 o'clock conclude.
  Mr. DODD. Certainly I would have no objection to that whatsoever. 
Take some time at this juncture too, if you wish.
  Mr. SPECTER. I will do it all at once. I don't want to truncate it.
  I ask unanimous consent that I may have the floor for 30 minutes at 
the conclusion of the two votes scheduled for 2 o'clock.
  The PRESIDING OFFICER. Is there objection?
  Mr. DODD. Again, let me reserve the right to object. I see the 
minority wants to check on such a request. I have no objection myself 
but obviously that is a matter--in fairness to the minority, we want to 
let them know of such a request. Here we are eating up time right now. 
I see my friend from North Dakota here as well. I am deeply grateful to 
the chairman of the Budget Committee.
  Go ahead with that request. I am told it is OK.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. SPECTER. I thank the Chair and my colleague and the unknown 
persons in the cloakroom.
  Mr. DODD. I thank my colleague from Pennsylvania and the unknown 
persons in the cloakroom. Let the record show they acknowledged the 
Senator's request.
  The PRESIDING OFFICER. The Senator from North Dakota is recognized.
  Mr. CONRAD. Mr. President, I come to the floor to discuss the budget 
point of order that has been raised against the financial reform 
conference report. I will be voting to waive this point of order. As 
Budget Committee chairman, I do not take this step lightly. In fact, 
the point of order that has been offered is a point of order that I 
created in the 2008 budget, so it is something I feel strongly about as 
a general matter. But its applicability here is false in the face of 
the importance of the legislation we need to consider.
  The legislation before us is critical to our economic strength. I 
think we all understand that financial reform is long overdue. It has 
been almost 2 years since the financial sector collapse brought our 
economy to the brink of global financial collapse. I was in the room 
and Senator Dodd was in the room when we were informed by the Chairman 
of the Federal Reserve and the Secretary of the Treasury in the 
previous administration that if we failed to act at that dire moment, 
we could face a global financial collapse. That is how serious it was.
  Now that the economy has stabilized, it is easy to forget the crisis 
that swept through the financial markets and threw us into the worst 
downturn since the Great Depression--in fact, which risked a second 
great depression. But we cannot afford to forget. We need to remember 
that the problems on Wall

[[Page S5893]]

Street and in our financial sector have a direct impact on Main Street 
and the lives of every American. We need to ensure that taxpayers are 
never again asked to bail out Wall Street.
  This financial reform legislation will prevent another financial 
sector collapse, or at least will help prevent it. I do not think any 
of us can say this will prevent any future collapse, but it is 
critically important to helping us prevent another collapse. It will 
allow the government to shut down firms that threaten to crater our 
economy and ensure that the financial industry, not taxpayers, is on 
the hook for any costs. It will rein in risky derivatives and other 
risky trading practices that undermined some of our largest financial 
institutions. It will help level the playing field for smaller banks 
and credit unions by cracking down on the risky practices of Wall 
Street and nonbank financial institutions that caused the financial 
crisis.
  I am grateful to Senator Dodd, the Banking Committee, and members of 
the conference for working with me to make certain that the final bill 
recognizes the special circumstances of community banks and credit 
unions in rural States such as mine. In particular, I appreciate the 
committee's modification to the lending limit standards. This is very 
important to farming communities across the country.
  The final bill also provides added flexibility for rural lenders in 
the new mortgage standards as well as provisions to improve interchange 
reform for smaller financial institutions. Finally, I am pleased the 
committee included a risk-focused deposit insurance fund assessment 
formula and modified risk retention requirements for high quality 
loans.
  Especially I thank Senator Dodd for his extraordinary leadership. 
What a final year in the Senate. What a remarkable legacy he is 
leaving. I think the annals of the Senate will show very few Senators 
have had a record of accomplishment that matches what Senator Dodd will 
have done in this year.
  With respect to the budget point of order that has been raised 
against the conference report, let me make a couple of general points. 
First, this budget violation is not significant enough to merit 
derailing this important legislation. Second, we must bear in mind the 
risks of failing to act. If we fail to protect against a future 
collapse and create an orderly process for dealing with giant insolvent 
financial institutions, it is inevitable that taxpayers will again at 
some future point be asked to bail out the financial sector and prevent 
a catastrophic financial collapse. If one measures on any scale the 
differences between the technical violation in this budget point of 
order against what would happen if this legislation fails, they cannot 
even be compared. I mean, it is a gnat against an elephant. So let's 
keep things in mind here.

  Second, we must bear in mind the risk of failing to act because that 
would burden taxpayers in a way far beyond anything we see with this 
budget point of order. None of us wants that. This bill is an insurance 
policy against an expensive future taxpayer bailout.
  The point of order that has been raised is the long-term deficit 
point of order, a point of order I established in the budget resolution 
of 2008. This point of order prohibits legislation that worsens the 
deficit by more than $5 billion in any of the four 10-year periods 
following 2019.
  CBO has determined that at least in one of those four 10-year 
periods, the conference report would exceed this threshold. But this is 
really just a timing issue caused by the new bipartisan resolution 
authority created by the bill. This is the new authority given to the 
government to wind down failing financial firms. Under the resolution 
authority, if a financial firm is about to collapse, the government 
will use the firm's assets to wind it down and put it out of business. 
If the firm's assets are insufficient, the government will temporarily 
borrow funds from the Treasury. The financial industry will then 
reimburse the government and the taxpayers for 100 percent of the cost. 
Again, 100 percent of the money will be paid back by the banks. So the 
net impact on the deficit is zero.
  Overall, the bill saves $3.2 billion over the first 10 years, 
according to the Congressional Budget Office. So while technically this 
budget point of order lies, if you pierce the veil and look at what 
really happens, this bill reduces the deficit, according to the 
Congressional Budget Office, which is the nonpartisan scorekeeper here 
in the Senate. Because there is a lag time for the government to 
collect this money from the financial industry, CBO scores the bill as 
increasing the deficit in some of the later decades. But all of that 
money will be paid back in ensuing years, and that is what matters most 
in this case.
  So although this bill does technically violate the long-term deficit 
point of order, it is insignificant. The fact is, this bill reduces the 
deficit, according to the Congressional Budget Office. So I urge my 
colleagues to waive the point of order, to support passage of this 
financial reform legislation, which is clearly a significant step in 
the right direction in preventing the kind of risk to our Nation's 
economy that is so apparent with the current structure.
  Again, I thank the chairman for his extraordinary work not only on 
this bill but throughout the year and, I think all of us know, 
throughout his career.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Connecticut
  Mr. DODD. Mr. President, before my friend, the chairman of the Budget 
Committee, leaves, let me thank him immensely for his analysis of this 
issue. He has it, as we saw as well, exactly right. In fact, it is not 
only repaying 100 percent but with interest. There is an interest 
requirement, that if we borrow from the taxpayers in order to wind down 
substantially risky firms, then not only do you get paid back, but the 
interest on the cost of that money is also part of the deal. So it is 
100 percent-plus coming back to the Treasury.
  But his analysis and that of his committee--and there is no one who 
has been more disciplined or guarded about the budgetary process over 
the years we have served together, and so I appreciate the Senator's 
analysis of this particular point on the long-term deficit.
  I commend the Senator for including the provisions he has and trying 
to build some discipline into the process of how we expend taxpayer 
moneys, collect taxes in the first place to pay for the needed 
expenditures of our government. So I thank the Senator for that.
  I thank him for his comments as well about the bill and his support 
and also the substantive contributions the Senator from North Dakota 
has made, because one of the things we tried to be very careful about--
Jon Tester of Montana, who sits on the committee with me, has been very 
careful and been tremendously active in seeing to it that rural America 
is going to be well served by this legislation. And there are 
differences. It is not all Wall Street, New York, and major financial 
centers. The importance of the availability of credit in rural 
communities is critical, as my colleague from North Dakota has informed 
me over the years we have served together. That ability of a local 
farmer to borrow that money in the spring, to be able to pay back in 
the fall, at harvest time, has been essential, and knowing how 
difficult it has been throughout the country to have access to credit 
is essential.
  So his contributions to the legislation make sure that what we do 
here is going to enhance the capability of rural America to not only 
come out of this crisis we are in but to prosper in the years ahead 
with this legislation. So beyond the budgetary considerations and the 
points of order before us, I thank him for his contributions to the 
substance of the bill, which has made it a far better bill to begin 
with.
  I see my colleague from Oregon is here. I yield the floor.
  The PRESIDING OFFICER. The Senator from Oregon is recognized.
  Mr. MERKLEY. Mr. President, I thank Chairman Dodd for yielding to me 
and for his leadership on financial reform.
  I yield to Senator Levin.
  Mr. LEVIN. Mr. President, Senator Merkley and I, as the principal 
authors of sections 619, 620, and 621 of the Dodd-Frank Act, thought it 
might be helpful to explain in some detail those sections, which are 
based on our bill, S. 3098, called the Protect Our Recovery

[[Page S5894]]

Through Oversight of Proprietary, PROP, Trading Act of 2010, and the 
subsequently filed Merkley-Levin Amendment, No. 4101, to the Dodd-
Lincoln substitute, which was the basis of the provision adopted by the 
Conference Committee.
  I yield the floor to my colleague, Senator Merkley.
  Mr. MERKLEY. I thank Senator Levin and will be setting forth here our 
joint explanation of the Merkley-Levin provisions of the Dodd-Frank 
Act. Sections 619, 620 and 621 do three things: prohibit high-risk 
proprietary trading at banks, limit the systemic risk of such 
activities at systemically significant nonbank financial companies, and 
prohibit material conflicts of interest in asset-backed 
securitizations.
  Sections 619 and 620 amend the Bank Holding Company Act of 1956 to 
broadly prohibit proprietary trading, while nevertheless permitting 
certain activities that may technically fall within the definition of 
proprietary trading but which are, in fact, safer, client-oriented 
financial services. To account for the additional risk of proprietary 
trading among systemically critical financial firms that are not banks, 
bank holding companies, or the like, the sections require nonbank 
financial companies supervised by the Federal Reserve Board, the 
``Board'', to keep additional capital for their proprietary trading 
activities and subject them to quantitative limits on those activities. 
In addition, given the unique control that firms who package and sell 
asset-backed securities (including synthetic asset-backed securities) 
have over transactions involving those securities, section 621 protects 
purchasers by prohibiting those firms from engaging in transactions 
that involve or result in material conflicts of interest.
  First, it is important to remind our colleagues how the financial 
crisis of the past several years came to pass. Beginning in the 1980's, 
new financial products and significant amounts of deregulation 
undermined the Glass-Steagall Act's separation of commercial banking 
from securities brokerage or ``investment banking'' that had kept our 
banking system relatively safe since 1933.
  Over time, commercial and investment banks increasingly relied on 
precarious short term funding sources, while at the same time 
significantly increasing their leverage. It was as if our banks and 
securities firms, in competing against one another, were race car 
drivers taking the curves ever more tightly and at ever faster speeds. 
Meanwhile, to match their short-term funding sources, commercial and 
investment banks drove into increasingly risky, short-term, and 
sometimes theoretically hedged, proprietary trading. When markets took 
unexpected turns, such as when Russia defaulted on its debt and when 
the U.S. mortgage-backed securities market collapsed, liquidity 
evaporated, and financial firms became insolvent very rapidly. No 
amount of capital could provide a sufficient buffer in such situations.
  In the face of the worst financial crisis in 60 years, the January 
2009 report by the Group of 30, an international group of financial 
experts, placed blame squarely on proprietary trading. This report, 
largely authored by former Federal Reserve System Chairman Paul 
Volcker, recommended prohibiting systemically critical banking 
institutions from trading in securities and other products for their 
own accounts. In January 2010, President Barack Obama gave his full 
support to common-sense restrictions on proprietary trading and fund 
investing, which he coined the ``Volcker Rule.''
  The ``Volcker Rule,'' which Senator Levin and I drafted and have 
championed in the Senate, and which is embodied in section 619, 
embraces the spirit of the Glass-Steagall Act's separation of 
``commercial'' from ``investment'' banking by restoring a protective 
barrier around our critical financial infrastructure. It covers not 
simply securities, but also derivatives and other financial products. 
It applies not only to banks, but also to nonbank financial firms whose 
size and function render them systemically significant.
  While the intent of section 619 is to restore the purpose of the 
Glass-Steagall barrier between commercial and investment banks, we also 
update that barrier to reflect the modern financial world and permit a 
broad array of low-risk, client-oriented financial services. As a 
result, the barrier constructed in section 619 will not restrict most 
financial firms.
  Section 619 is intended to limit proprietary trading by banking 
entities and systemically significant nonbank financial companies. 
Properly implemented, section 619's limits will tamp down on the risk 
to the system arising from firms competing to obtain greater and 
greater returns by increasing the size, leverage, and riskiness of 
their trades. This is a critical part of ending too big to fail 
financial firms. In addition, section 619 seeks to reorient the U.S. 
banking system away from leveraged, short-term speculation and instead 
towards the safe and sound provision of long-term credit to families 
and business enterprises.

  We recognize that regulators are essential partners in the 
legislative process. Because regulatory interpretation is so critical 
to the success of the rule, we will now set forth, as the principal 
authors of Sections 619 to 621, our explanations of how these 
provisions work.
  Section 619's prohibitions and restrictions on proprietary trading 
are set forth in a new section 13 to the Bank Holding Company Act of 
1956, and subsection (a), paragraph (1) establishes the basic principle 
clearly: a banking entity shall not ``engage in proprietary trading'' 
or ``acquire or retain . . . ownership interest[s] in or sponsor a 
hedge fund or private equity fund'', unless otherwise provided in the 
section. Paragraph (2) establishes the principle for nonbank financial 
companies supervised by the Board by subjecting their proprietary 
trading activities to quantitative restrictions and additional capital 
charges. Such quantitative limits and capital charges are to be set by 
the regulators to address risks similar to those which lead to the flat 
prohibition for banking entities.
  Subsection (h), paragraph (1) defines ``banking entity'' to be any 
insured depository institution (as otherwise defined under the Bank 
Holding Company Act), any entity that controls an insured depository 
institution, any entity that is treated as a bank holding company under 
section 8 of the International Banking Act of 1978, and any affiliates 
or subsidiaries of such entities. We and the Congress specifically 
rejected proposals to exclude the affiliates and subsidiaries of bank 
holding companies and insured depository institutions, because it was 
obvious that restricting a bank, but not its affiliates and 
subsidiaries, would ultimately be ineffective in restraining the type 
of high-risk proprietary trading that can undermine an insured 
depository institution.
  The provision recognizes the modern reality that it is difficult to 
separate the fate of a bank and its bank holding company, and that for 
the bank holding company to be a source of strength to the bank, its 
activities, and those of its other subsidiaries and affiliates, cannot 
be at such great risk as to imperil the bank. We also note that not all 
banks pose the same risks. Accordingly, the paragraph provides a narrow 
exception for insured depository institutions that function principally 
for trust purposes and do not hold public depositor money, make loans, 
or access Federal Reserve lending or payment services. These 
specialized entities that offer very limited trust services are 
elsewhere carved out of the definition of ``bank,'' so we do not treat 
them as banks for the purposes of the restriction on proprietary 
trading. However, such institutions are covered by the restriction if 
they qualify under the provisions covering systemically important 
nonbank financial companies.
  Subsection (h), paragraph (3) defines nonbank financial companies 
supervised by the Board to be those financial companies whose size, 
interconnectedness, or core functions are of sufficiently systemic 
significance as to warrant additional supervision, as directed by the 
Financial Stability Oversight Council pursuant to Title I of the Dodd-
Frank Act. Given the varied nature of such nonbank financial companies, 
for some of which proprietary trading is effectively their business, an 
outright statutory prohibition on such trading was not warranted. 
Instead, the risks posed by their proprietary trading is addressed 
through robust capital charges and quantitative limits that increase 
with the size, interconnectedness, and systemic importance of the

[[Page S5895]]

business functions of the nonbank financial firm. These restrictions 
should become stricter as size, leverage, and other factors increase. 
As with banking entities, these restrictions should also help reduce 
the size and risk of these financial firms.
  Naturally, the definition of ``proprietary trading'' is critical to 
the provision. For the purposes of section 13, proprietary trading 
means ``engaging as a principal for the trading account'' in 
transactions to ``purchase or sell, or otherwise acquire or dispose 
of'' a wide range of traded financial products, including securities, 
derivatives, futures, and options. There are essentially three key 
elements to the definition: (1) the firm must be acting ``as a 
principal,'' (2) the trading must be in its ``trading account'' or 
another similar account, and (3) the restrictions apply to the full 
range of its financial instruments.
  Purchasing or selling ``as a principal'' refers to when the firm 
purchases or sells the relevant financial instrument for its own 
account. The prohibition on proprietary trading does not cover trading 
engaged with exclusively client funds.
  The term ``trading account'' is intended to cover an account used by 
a firm to make profits from relatively short-term trading positions, as 
opposed to long-term, multi-year investments. The administration's 
proposed Volcker Rule focused on short-term trading, using the phrase 
``trading book'' to capture that concept. That phrase, which is 
currently used by some bank regulators was rejected, however, and 
the ultimate conference report language uses the term ``trading 
account'' rather than ``trading book'' to ensure that all types of 
accounts used for proprietary trading are covered by the section.

  To ensure broad coverage of the prohibition on proprietary trading, 
paragraph (3) of subsection (h) defines ``trading account'' as any 
account used ``principally for the purpose of selling in the near term 
(or otherwise with the intent to resell in order to profit from short-
term price movements)'' and such other accounts as the regulators 
determine are properly covered by the provision to fulfill the purposes 
of the section. In designing this definition, we were aware of bank 
regulatory capital rules that distinguish between short-term trading 
and long-term investments, and our overall focus was to restrict high-
risk proprietary trading. For banking entity subsidiaries that do not 
maintain a distinction between a trading account and an investment 
account, all accounts should be presumed to be trading accounts and 
covered by the restriction.
  Linking the prohibition on proprietary trading to trading accounts 
permits banking entities to hold debt securities and other financial 
instruments in long-term investment portfolios. Such investments should 
be maintained with the appropriate capital charges and held for longer 
periods.
  The definition of proprietary trading in paragraph (4) covers a wide 
range of financial instruments, including securities, commodities, 
futures, options, derivatives, and any similar financial instruments. 
Pursuant to the rule of construction in subsection (g), paragraph (2), 
the definition should not generally include loans sold in the process 
of securitizing; however, it could include such loans if such loans 
become financial instruments traded to capture the change in their 
market value.
  Limiting the definition of proprietary trading to near-term holdings 
has the advantage of permitting banking entities to continue to deploy 
credit via long-term capital market debt instruments. However, it has 
the disadvantage of failing to prevent the problems created by longer-
term holdings in riskier financial instruments, for example, highly 
complex collateralized debt obligations and other opaque instruments 
that are not readily marketable. To address the risks to the banking 
system arising from those longer-term instruments and related trading, 
section 620 directs Federal banking regulators to sift through the 
assets, trading strategies, and other investments of banking entities 
to identify assets or activities that pose unacceptable risks to banks, 
even when held in longer-term accounts. Regulators are expected to 
apply the lessons of that analysis to tighten the range of investments 
and activities permissible for banking entities, whether they are at 
the insured depository institution or at an affiliate or subsidiary, 
and whether they are short or long term in nature.
  The new Bank Holding Company Act section 13 also restricts investing 
in or sponsoring hedge funds and private equity funds. Clearly, if a 
financial firm were able to structure its proprietary positions simply 
as an investment in a hedge fund or private equity fund, the 
prohibition on proprietary trading would be easily avoided, and the 
risks to the firm and its subsidiaries and affiliates would continue. A 
financial institution that sponsors or manages a hedge fund or private 
equity fund also incurs significant risk even when it does not invest 
in the fund it manages or sponsors. Although piercing the corporate 
veil between a fund and its sponsoring entity may be difficult, recent 
history demonstrates that a financial firm will often feel compelled by 
reputational demands and relationship preservation concerns to bail out 
clients in a failed fund that it managed or sponsored, rather than risk 
litigation or lost business. Knowledge of such concerns creates a moral 
hazard among clients, attracting investment into managed or sponsored 
funds on the assumption that the sponsoring bank or systemically 
significant firm will rescue them if markets turn south, as was done by 
a number of firms during the 2008 crisis. That is why setting limits on 
involvement in hedge funds and private equity funds is critical to 
protecting against risks arising from asset management services.
  Subsection (h), paragraph (2) sets forth a broad definition of hedge 
fund and private equity fund, not distinguishing between the two. The 
definition includes any company that would be an investment company 
under the Investment Company Act of 1940, but is excluded from such 
coverage by the provisions of sections 3(c)(1) or 3(c)(7). Although 
market practice in many cases distinguishes between hedge funds, which 
tend to be trading vehicles, and private equity funds, which tend to 
own entire companies, both types of funds can engage in high risk 
activities and it is exceedingly difficult to limit those risks by 
focusing on only one type of entity.
  Despite the broad prohibition on proprietary trading set forth in 
subsection (a), the legislation recognizes that there are a number of 
low-risk proprietary activities that do not pose unreasonable risks and 
explicitly permits those activities to occur. Those low-risk 
proprietary trading activities are identified in subsection (d), 
paragraph (1), subject to certain limitations set forth in paragraph 
(2), and additional capital charges required in paragraph (3).
  While paragraph (1) authorizes several permitted activities, it 
simultaneously grants regulators broad authority to set further 
restrictions on any of those activities and to supplement the 
additional capital charges provided for by paragraph (3).
  Subparagraph (d)(1)(A) authorizes the purchase or sale of government 
obligations, including government-sponsored enterprise, GSE, 
obligations, on the grounds that such products are used as low-risk, 
short-term liquidity positions and as low-risk collateral in a wide 
range of transactions, and so are appropriately retained in a trading 
account. Allowing trading in a broad range of GSE obligations is also 
meant to recognize a market reality that removing the use of these 
securities as liquidity and collateral positions would have significant 
market implications, including negative implications for the housing 
and farm credit markets. By authorizing trading in GSE obligations, the 
language is not meant to imply a view as to GSE operations or structure 
over the long-term, and permits regulators to add restrictions on this 
permitted activity as necessary to prevent high-risk proprietary 
trading activities under paragraph (2). When GSE reform occurs, we 
expect these provisions to be adjusted accordingly. Moreover, as is the 
case with all permitted activities under paragraph (1), regulators are 
expected to apply additional capital restrictions under paragraph (3) 
as necessary to account for the risks of the trading activities.
  Subparagraph (d)(1)(B) permits underwriting and market-making-related

[[Page S5896]]

transactions that are technically trading for the account of the firm 
but, in fact, facilitate the provision of near-term client-oriented 
financial services. Market-making is a customer service whereby a firm 
assists its customers by providing two-sided markets for speedy 
acquisition or disposition of certain financial instruments. Done 
properly, it is not a speculative enterprise, and revenues for the firm 
should largely arise from the provision of credit provided, and not 
from the capital gain earned on the change in the price of instruments 
held in the firm's accounts. Academic literature sets out the 
distinctions between making markets for customers and holding 
speculative positions in assets, but in general, the two types of 
trading are distinguishable by the volume of trading, the size of the 
positions, the length of time that positions remains open, and the 
volatility of profits and losses, among other factors. Regulations 
implementing this permitted activity should focus on these types of 
factors to assist regulators in distinguishing between financial firms 
assisting their clients versus those engaged in proprietary trading. 
Vigorous and robust regulatory oversight of this issue will be 
essential to the prevent ``market-making'' from being used as a 
loophole in the ban on proprietary trading.
  The administration's draft language, the original section 619 
contemplated by the Senate Banking Committee, and amendment 4101 each 
included the term ``in facilitation of customer relations'' as a 
permitted activity. The term was removed in the final version of the 
Dodd-Frank Act out of concern that this phrase was too subjective, 
ambiguous, and susceptible to abuse. At the same time, we recognize 
that the term was previously included to permit certain legitimate 
client-oriented services, such pre-market-making accumulation of small 
positions that might not rise to the level of fully ``market-making'' 
in a security or financial instrument, but are intended to nonetheless 
meet expected near-term client liquidity needs. Accordingly, while 
previous versions of the legislation referenced ``market-making'', the 
final version references ``market-making-related'' to provide the 
regulators with limited additional flexibility to incorporate those 
types of transactions to meet client needs, without unduly warping the 
common understanding of market-making.
  We note, however, that ``market-making-related'' is not a term whose 
definition is without limits. It does not implicitly cover every time a 
firm buys an existing financial instrument with the intent to later 
sell it, nor does it cover situations in which a firm creates or 
underwrites a new security with the intent to market it to a client. 
Testimony by Goldman Sachs Chairman Lloyd Blankfein and other Goldman 
executives during a hearing before the Permanent Subcommittee on 
Investigations seemed to suggest that any time the firm created a new 
mortgage related security and began soliciting clients to buy it, the 
firm was ``making a market'' for the security. But one-sided marketing 
or selling securities is not equivalent to providing a two-sided market 
for clients buying and selling existing securities. The reality was 
that Goldman Sachs was creating new securities for sale to clients and 
building large speculative positions in high-risk instruments, 
including credit default swaps. Such speculative activities are the 
essence of proprietary trading and cannot be properly considered within 
the coverage of the terms ``market-making'' or ``market-making-
related.''
  The subparagraph also specifically limits such underwriting and 
market-making-related activities to ``reasonably expected near term 
demands of clients, customers, and counterparties.'' Essentially, the 
subparagraph creates two restrictions, one on the expected holding 
period and one on the intent of the holding. These two restrictions 
greatly limit the types of risks and returns for market-makers. 
Generally, the revenues for market-making by the covered firms should 
be made from the fees charged for providing a ready, two-sided market 
for financial instruments, and not from the changes in prices acquired 
and sold by the financial institution. The ``near term'' requirement 
connects to the provision in the definition of trading account whereby 
the account is defined as trading assets that are acquired 
``principally for the purpose of selling in the near term.'' The intent 
is to focus firms on genuinely making markets for clients, and not 
taking speculative positions with the firm's capital. Put simply, a 
firm will not satisfy this requirement by acquiring a position on the 
hope that the position will be able to be sold at some unknown future 
date for a trading profit.

  Subparagraph (d)(1)(C) permits a banking entity to engage in ``risk-
mitigating hedging activities in connection with and related to 
individual or aggregated positions, contracts, or other holdings of the 
banking entity that are designed to reduce the specific risks to the 
banking entity in connection with and related to such positions, 
contracts, or other holdings.'' This activity is permitted because its 
sole purpose is to lower risk.
  While this subparagraph is intended to permit banking entities to 
utilize their trading accounts to hedge, the phrase ``in connection 
with and related to individual or aggregated positions . . .'' was 
added between amendment 4101 and the final version in the conference 
report in order to ensure that the hedge applied to specific, 
identifiable assets, whether it be on an individual or aggregate basis. 
Moreover, hedges must be to reduce ``specific risks'' to the banking 
entity arising from these positions. This formulation is meant to focus 
banking entities on traditional hedges and prevent proprietary 
speculation under the guise of general ``hedging.'' For example, for a 
bank with a significant set of loans to a foreign country, a foreign 
exchange swap may be an appropriate hedging strategy. On the other 
hand, purchasing commodity futures to ``hedge'' inflation risks that 
may generally impact the banking entity may be nothing more than 
proprietary trading under another name. Distinguishing between true 
hedges and covert proprietary trades may be one of the more challenging 
areas for regulators, and will require clear identification by 
financial firms of the specific assets and risks being hedged, research 
and analysis of market best practices, and reasonable regulatory 
judgment calls. Vigorous and robust regulatory oversight of this issue 
will be essential to the prevent ``hedging'' from being used as a 
loophole in the ban on proprietary trading.
  Subparagraph (d)(1)(D) permits the acquisition of the securities and 
other affected financial instruments ``on behalf of customers.'' This 
permitted activity is intended to allow financial firms to use firm 
funds to purchase assets on behalf of their clients, rather than on 
behalf of themselves. This subparagraph is intended, in particular, to 
provide reassurance that trading in ``street name'' for customers or in 
trust for customers is permitted.
  In general, subparagraph (d)(1)(E) provides exceptions to the 
prohibition on investing in hedge funds or private equity funds, if 
such investments advance a ``public welfare'' purpose. It permits 
investments in small business investment companies, which are a form of 
regulated venture capital fund in which banks have a long history of 
successful participation. The subparagraph also permits investments 
``of the type'' permitted under the paragraph of the National Bank Act 
enabling banks to invest in a range of low-income community development 
and other projects. The subparagraph also specifically mentions tax 
credits for historical building rehabilitation administered by the 
National Park Service, but is flexible enough to permit the regulators 
to include other similar low-risk investments with a public welfare 
purpose.
  Subparagraph (d)(1)(F) is meant to accommodate the normal business of 
insurance at regulated insurance companies that are affiliated with 
banks. The Volcker Rule was never meant to affect the ordinary business 
of insurance: the collection and investment of premiums, which are then 
used to satisfy claims of the insured. These activities, while 
definitionally proprietary trading, are heavily regulated by State 
insurance regulators, and in most cases do not pose the same level of 
risk as other proprietary trading.
  However, to prevent abuse, firms seeking to rely on this insurance-
related exception must meet two essential qualifications. First, only 
trading for the general account of the insurance firm would qualify. 
Second, the

[[Page S5897]]

trading must be subject to adequate State-level insurance regulation. 
Trading by insurance companies or their affiliates that is not subject 
to insurance company investment regulations will not qualify for 
protection here.
  Further, where State laws and regulations do not exist or otherwise 
fail to appropriately connect the insurance company investments to the 
actual business of insurance or are found to inadequately protect the 
firm, the subparagraph's conditions will not be met.
  Subparagraph (d)(1)(G) permits firms to organize and offer hedge 
funds or private equity funds as an asset management service to 
clients. It is important to remember that nothing in section 619 
otherwise prohibits a bank from serving as an investment adviser to an 
independent hedge fund or private equity fund. Yet, to serve in that 
capacity, a number of criteria must be met.
  First, the firm must be doing so pursuant to its provision of bona 
fide trust, fiduciary, or investment advisory services to customers. 
Given the fiduciary obligations that come with such services, these 
requirements ensure that banking entities are properly engaged in 
responsible forms of asset management, which should tamp down on the 
risks taken by the relevant fund.
  Second, subparagraph (d)(1)(G) provides strong protections against a 
firm bailing out its funds. Clause (iv) prohibits banking entities, as 
provided under paragraph (1) and (2) of subsection (f), from entering 
into lending or similar transactions with related funds, and clause (v) 
prohibits banking entities from ``directly or indirectly, 
guarantee[ing], assum[ing], or otherwise insur[ing] the obligations or 
performance of the hedge fund or private equity fund.'' To prevent 
banking entities from engaging in backdoor bailouts of their invested 
funds, clause (v) extends to the hedge funds and private equity funds 
in which such subparagraph (G) hedge funds and private equity funds 
invest.
  Third, to prevent a banking entity from having an incentive to 
bailout its funds and also to limit conflicts of interest, clause (vii) 
of subparagraph (G) restricts directors and employees of a banking 
entity from being invested in hedge funds and private equity funds 
organized and offered by the banking entity, except for directors or 
employees ``directly engaged'' in offering investment advisory or other 
services to the hedge fund or private equity fund. Fund managers can 
have ``skin in the game'' for the hedge fund or private equity fund 
they run, but to prevent the bank from running its general employee 
compensation through the hedge fund or private equity fund, other 
management and employees may not.
  Fourth, by stating that a firm may not organize and offer a hedge 
fund or private equity fund with the firm's name on it, clause (vi) of 
subparagraph (G) further restores market discipline and supports the 
restriction on firms bailing out funds on the grounds of reputational 
risk. Similarly, clause (viii) ensures that investors recognize that 
the funds are subject to market discipline by requiring that funds 
provide prominent disclosure that any losses of a hedge fund or private 
equity fund are borne by investors and not by the firm, and the firm 
must also comply with any other restrictions to ensure that investors 
do not rely on the firm, including any of its affiliates or 
subsidiaries, for a bailout.
  Fifth, the firm or its affiliates cannot make or maintain an 
investment interest in the fund, except in compliance with the limited 
fund seeding and alignment of interest provisions provided in paragraph 
(4) of subsection (d). This paragraph allows a firm, for the limited 
purpose of maintaining an investment management business, to seed a new 
fund or make and maintain a ``de minimis'' co-investment in a hedge 
fund or private equity fund to align the interests of the fund managers 
and the clients, subject to several conditions. As a general rule, 
firms taking advantage of this provision should maintain only small 
seed funds, likely to be $5 to $10 million or less. Large funds or 
funds that are not effectively marketed to investors would be evasions 
of the restrictions of this section. Similarly, co-investments designed 
to align the firm with its clients must not be excessive, and should 
not allow for firms to evade the intent of the restrictions of this 
section.
  These ``de minimis'' investments are to be greatly disfavored, and 
subject to several significant restrictions. First, a firm may only 
have, in the aggregate, an immaterial amount of capital in such funds, 
but in no circumstance may such positions aggregate to more than 3 
percent of the firm's Tier 1 capital. Second, by one year after the 
date of establishment for any fund, the firm must have not more than a 
3 percent ownership interest. Third, investments in hedge funds and 
private equity funds shall be deducted on, at a minimum, a one-to-one 
basis from capital. As the leverage of a fund increases, the capital 
charges shall be increased to reflect the greater risk of loss. This is 
specifically intended to discourage these high-risk investments, and 
should be used to limit these investments to the size only necessary to 
facilitate asset management businesses for clients.
  Subparagraphs (H) and (I) recognize rules of international regulatory 
comity by permitting foreign banks, regulated and backed by foreign 
taxpayers, in the course of operating outside of the United States to 
engage in activities permitted under relevant foreign law. However, 
these subparagraphs are not intended to permit a U.S. banking entity to 
avoid the restrictions on proprietary trading simply by setting up an 
offshore subsidiary or reincorporating offshore, and regulators should 
enforce them accordingly. In addition, the subparagraphs seek to 
maintain a level playing field by prohibiting a foreign bank from 
improperly offering its hedge fund and private equity fund services to 
U.S. persons when such offering could not be made in the United States.
  Subparagraph (J) permits the regulators to add additional exceptions 
as necessary to ``promote and protect the safety and soundness of the 
banking entity and the financial stability of the United States.'' This 
general exception power is intended to ensure that some unforeseen, 
low-risk activity is not inadvertently swept in by the prohibition on 
proprietary trading. However, the subparagraph sets an extremely high 
bar: the activity must be necessary to promote and protect the safety 
and soundness of the banking entity and the financial stability of the 
United States, and not simply pose a competitive disadvantage or a 
threat to firms' profitability.

  Paragraph (2) of section (d) adds explicit statutory limits to the 
permitted activities under paragraph (1). Specifically, it prevents an 
activity from qualifying as a permitted activity if it would ``involve 
or result in a material conflict of interest,'' ``result directly or 
indirectly in a material exposure . . . to high-risk assets or high-
risk trading strategies'' or otherwise pose a threat to the safety and 
soundness of the firm or the financial stability of the United States. 
Regulators are directed to define the key terms in the paragraph and 
implement the restrictions as part of the rulemaking process. 
Regulators should pay particular attention to the hedge funds and 
private equity funds organized and offered under subparagraph (G) to 
ensure that such activities have sufficient distance from other parts 
of the firm, especially those with windows into the trading flow of 
other clients. Hedging activities should also be particularly 
scrutinized to ensure that information about client trading is not 
improperly utilized.
  The limitation on proprietary trading activities that ``involve or 
result in a material conflict of interest'' is a companion to the 
conflicts of interest prohibition in section 621, but applies to all 
types of activities rather than just asset-backed securitizations.
  With respect to the definition of high-risk assets and high-risk 
trading strategies, regulators should pay close attention to the 
characteristics of assets and trading strategies that have contributed 
to substantial financial loss, bank failures, bankruptcies, or the 
collapse of financial firms or financial markets in the past, including 
but not limited to the crisis of 2008 and the financial crisis of 1998. 
In assessing high-risk assets and high-risk trading strategies, 
particular attention should be paid to the transparency of the markets, 
the availability of consistent pricing information, the depth of the 
markets, and the risk characteristics

[[Page S5898]]

of the assets and strategies themselves, including any embedded 
leverage. Further, these characteristics should be evaluated in times 
of extreme market stress, such as those experienced recently. With 
respect to trading strategies, attention should be paid to the role 
that certain types of trading strategies play in times of relative 
market calm, as well as times of extreme market stress. While 
investment advisors may freely deploy high-risk strategies for their 
clients, attention should be paid to ensure that firms do not utilize 
them for their own proprietary activities. Barring high risk strategies 
may be particularly critical when policing market-making-related and 
hedging activities, as well as trading otherwise permitted under 
subparagraph (d)(1)(A). In this context, however, it is irrelevant 
whether or not a firm provides market liquidity: high-risk assets and 
high-risk trading strategies are never permitted.
  Subsection (d), paragraph (3) directs the regulators to set 
appropriate additional capital charges and quantitative limits for 
permitted activities. These restrictions apply to both banking entities 
and nonbank financial companies supervised by the Board. It is left to 
regulators to determine if those restrictions should apply equally to 
both, or whether there may appropriately be a distinction between 
banking entities and non-bank financial companies supervised by the 
Board. The paragraph also mandates diversification requirements where 
appropriate, for example, to ensure that banking entities do not deploy 
their entire permitted amount of de minimis investments into a small 
number of hedge funds or private equity funds, or that they dangerously 
over-concentrate in specific products or types of financial products.
  Subsection (e) provides vigorous anti-evasion authority, including 
record-keeping requirements. This authority is designed to allow 
regulators to appropriately assess the trading of firms, and 
aggressively enforce the text and intent of section 619.
  The restrictions on proprietary trading and relationships with 
private funds seek to break the internal connection between a bank's 
balance sheet and taking risk in the markets, with a view towards 
reestablishing market discipline and refocusing the bank on its credit 
extension function and client services. In the recent financial crisis, 
when funds advised by banks suffered significant losses, those off-
balance sheet funds came back onto the banks' balance sheets. At times, 
the banks bailed out the funds because the investors in the funds had 
other important business with the banks. In some cases, the investors 
were also key personnel at the banks. Regardless of the motivations, in 
far too many cases, the banks that bailed out their funds ultimately 
relied on taxpayers to bail them out. It is precisely for this reason 
that the permitted activities under subparagraph (d)(1)(G) are so 
narrowly defined.
  Indeed, a large part of protecting firms from bailing out their 
affiliated funds is by limiting the lending, asset purchases and sales, 
derivatives trading, and other relationships that a banking entity or 
nonbank financial company supervised by the Board may maintain with the 
hedge funds and private equity funds it advises. The relationships that 
a banking entity maintains with and services it furnishes to its 
advised funds can provide reasons why and the means through which a 
firm will bail out an advised fund, be it through a direct loan, an 
asset acquisition, or through writing a derivative. Further, providing 
advisory services to a hedge fund or private equity fund creates a 
conflict of interest and risk because when a banking entity is itself 
determining the investment strategy of a fund, it no longer can make a 
fully independent credit evaluation of the hedge fund or private equity 
fund borrower. These bailout protections will significantly benefit 
independent hedge funds and private equity funds, and also improve U.S. 
financial stability.
  Accordingly, subsection (f), paragraph (1) sets forth the broad 
prohibition on a banking entity entering into any ``covered 
transactions'' as such term is defined in the Federal Reserve Act's 
section 23A, as if such banking entity were a member bank and the fund 
were an affiliate thereof. ``Covered transactions'' under section 23A 
includes loans, asset purchases, and, following the Dodd-Frank bill 
adoption, derivatives between the member bank and the affiliate. In 
general, section 23A sets limits on the extension of credit between 
such entities, but paragraph (1) of subsection (f) prohibits all such 
transactions. It also prohibits transactions with funds that are 
controlled by the advised or sponsored fund. In short, if a banking 
entity organizes and offers a hedge fund or private equity fund or 
serves as investment advisor, manager, or sponsor of a fund, the fund 
must seek credit, including from asset purchases and derivatives, from 
an independent third party.
  Subsection (f), paragraph (2) applies section 23B of the Federal 
Reserve Act to a banking entity and its advised or sponsored hedge fund 
or private equity fund. This provides, inter alia, that transactions 
between a banking entity and its fund be conducted at arms length. The 
fact that section 23B also includes the provision of covered 
transactions under section 23A as part of its arms-length requirement 
should not be interpreted to undermine the strict prohibition on such 
transactions in paragraph (1).
  Subsection (f), paragraph (3) permits the Board to allow a very 
limited exception to paragraph (1) for the provision of certain limited 
services under the rubric of ``prime brokerage'' between the banking 
entity and a third-party-advised fund in which the fund managed, 
sponsored, or advised by the banking entity has taken an ownership 
interest. Essentially, it was argued that a banking entity should not 
be prohibited, under proper restrictions, from providing limited 
services to unaffiliated funds, but in which its own advised fund may 
invest. Accordingly, paragraph (3) is intended to only cover third-
party funds, and should not be used as a means of evading the general 
prohibition provided in paragraph (1). Put simply, a firm may not 
create tiered structures and rely upon paragraph (3) to provide these 
types of services to funds for which it serves as investment advisor.
  Further, in recognition of the risks that are created by allowing for 
these services to unaffiliated funds, several additional criteria must 
also be met for the banking entity to take advantage of this exception. 
Most notably, on top of the flat prohibitions on bailouts, the statute 
requires the chief executive officer of firms taking advantage of this 
paragraph to also certify that these services are not used directly or 
indirectly to bail out a fund advised by the firm.
  Subsection (f), paragraph (4) requires the regulatory agencies to 
apply additional capital charges and other restrictions to systemically 
significant nonbank financial institutions to account for the risks and 
conflicts of interest that are addressed by the prohibitions for 
banking entities. Such capital charges and other restrictions should be 
sufficiently rigorous to account for the significant amount of risks 
associated with these activities.
  To give markets and firms an opportunity to adjust, implementation of 
section 620 will proceed over a period of several years. First, 
pursuant to subsection (b), paragraph (1), the Financial Stability 
Oversight Council will conduct a study to examine the most effective 
means of implementing the rule. Then, under paragraph (b)(2), the 
Federal banking agencies, the Securities and Exchange Commission, and 
the Commodity Futures Trading Commission shall each engage in 
rulemakings for their regulated entities, with the rulemaking 
coordinated for consistency through the Financial Stability Oversight 
Council. In coordinating the rulemaking, the Council should strive to 
avoid a ``lowest common denominator'' framework, and instead apply the 
best, most rigorous practice from each regulatory agency.
  Pursuant to subsection (c), paragraph (1), most provisions of section 
619 become effective 12 months after the issuance of final rules 
pursuant to subsection (b), but in no case later than 2 years after the 
enactment of the Dodd-Frank Act. Paragraph (c)(2) provides a 2-year 
period following effective date of the provision during which entities 
must bring their activities into conformity with the law, which may be 
extended for up to 3 more years. Special illiquid funds may, if 
necessary, receive one 5-year extension and may

[[Page S5899]]

also continue to honor certain contractual commitments during the 
transition period. The purpose of this extended wind-down period is to 
minimize market disruption while still steadily moving firms away from 
the risks of the restricted activities.
  The definition of ``illiquid funds'' set forth in subsection (h) 
paragraph (7) is meant to cover, in general, very illiquid private 
equity funds that have deployed capital to illiquid assets such as 
portfolio companies and real estate with a projected investment holding 
period of several years. The Board, in consultation with the SEC, 
should therefore adopt rules to define the contours of an illiquid fund 
as appropriate to capture the intent of the provision. To facilitate 
certainty in the market with respect to divestiture, the Board is to 
conduct a special expedited rulemaking regarding these conformance and 
wind-down periods. The Board is also to set capital rules and any 
additional restrictions to protect the banking entities and the U.S. 
financial system during this wind-down period.

  We noted above that the purpose of section 620 is to review the long-
term investments and other activities of banks. The concerns reflected 
in this section arise out of losses that have appeared in the long-term 
investment portfolios in traditional depository institutions.
  Over time, various banking regulators have displayed expansive views 
and conflicting judgments about permissible investments for banking 
entities. Some of these activities, including particular trading 
strategies and investment assets, pose significant risks. While section 
619 provides numerous restrictions to proprietary trading and 
relationships to hedge funds and private equity funds, it does not seek 
to significantly alter the traditional business of banking.
  Section 620 is an attempt to reevaluate banking assets and strategies 
and see what types of restrictions are most appropriate. The Federal 
banking agencies should closely review the risks contained in the types 
of assets retained in the investment portfolio of depository 
institutions, as well as risks in affiliates' activities such as 
merchant banking. The review should dovetail with the determination of 
what constitutes ``high-risk assets'' and ``high risk trading 
strategies'' under paragraph (d)(2).
  At this point, I yield to Senator Levin to discuss an issue that is 
of particular interest to him involving section 621's conflict of 
interest provisions.
  Mr. LEVIN. I thank my colleague for the detailed explanation he has 
provided of sections 619 and 620, and fully concur in it. I would like 
to add our joint explanation of section 621, which addresses the 
blatant conflicts of interest in the underwriting of asset-backed 
securities highlighted in a hearing with Goldman Sachs before the 
Permanent Subcommittee on Investigations, which I chair.
  The intent of section 621 is to prohibit underwriters, sponsors, and 
others who assemble asset-backed securities, from packaging and selling 
those securities and profiting from the securities' failures. This 
practice has been likened to selling someone a car with no brakes and 
then taking out a life insurance policy on the purchaser. In the asset-
backed securities context, the sponsors and underwriters of the asset-
backed securities are the parties who select and understand the 
underlying assets, and who are best positioned to design a security to 
succeed or fail. They, like the mechanic servicing a car, would know if 
the vehicle has been designed to fail. And so they must be prevented 
from securing handsome rewards for designing and selling malfunctioning 
vehicles that undermine the asset-backed securities markets. It is for 
that reason that we prohibit those entities from engaging in 
transactions that would involve or result in material conflicts of 
interest with the purchasers of their products.
  Section 621 is not intended to limit the ability of an underwriter to 
support the value of a security in the aftermarket by providing 
liquidity and a ready two-sided market for it. Nor does it restrict a 
firm from creating a synthetic asset-backed security, which inherently 
contains both long and short positions with respect to securities it 
previously created, so long as the firm does not take the short 
position. But a firm that underwrites an asset-backed security would 
run afoul of the provision if it also takes the short position in a 
synthetic asset-backed security that references the same assets it 
created. In such an instance, even a disclosure to the purchaser of the 
underlying asset-backed security that the underwriter has or might in 
the future bet against the security will not cure the material conflict 
of interest.
  We believe that the Securities and Exchange Commission has sufficient 
authority to define the contours of the rule in such a way as to remove 
the vast majority of conflicts of interest from these transactions, 
while also protecting the healthy functioning of our capital markets.
  In conclusion, we would like to acknowledge all our supporters, co-
sponsors, and advisers who assisted us greatly in bringing this 
legislation to fruition. From the time President Obama announced his 
support for the Volcker Rule, a diverse and collaborative effort has 
emerged, uniting community bankers to old school financiers to 
reformers. Senator Merkley and I further extend special thanks to the 
original cosponsors of the PROP Trading Act, Senators Ted Kaufman, 
Sherrod Brown, and Jeanne Shaheen, who have been with us since the 
beginning.
  Senator Jack Reed and his staff did yeoman's work in advancing this 
cause. We further tip our hat to our tireless and vocal colleague, 
Senator Byron Dorgan, who opposed the repeal of Glass-Steagall and has 
been speaking about the risks from proprietary trading for a number of 
years. Above all, we pay tribute to the tremendous labors of Chairman 
Chris Dodd and his entire team and staff on the Senate Banking 
Committee, as well as the support of Chairman Barney Frank and 
Representative Paul Kanjorski. We extend our deep gratitude to our 
staffs, including the entire team and staff at the Permanent 
Subcommittee on Investigations, for their outstanding work. And last 
but not least, we highlight the visionary leadership of Paul Volcker 
and his staff. Without the support of all of them and many others, the 
Merkley-Levin language would not have been included in the Conference 
Report.
  We believe this provision will stand the test of time. We hope that 
our regulators have learned with Congress that tearing down regulatory 
walls without erecting new ones undermines our financial stability and 
threatens economic growth. We have legislated to the best of our 
ability. It is now up to our regulators to fully and faithfully 
implement these strong provisions.
  I yield the floor to Senator Merkley.
  Mr. MERKLEY. I thank my colleague for his remarks and concur in all 
respects.
  Mr. DODD. Mr. President, I said so yesterday, and I will say it 
again: I thank Senator Merkley. I guess there are four new Members of 
the Senate serving on the Banking Committee. Senator Merkley, Senator 
Warner, Senator Tester, and Senator Bennet are all new Members of the 
Senate from their respective States of Oregon, Virginia, Montana, and 
Colorado. To be thrown into what has been the largest undertaking of 
the Banking Committee, certainly in my three decades here--and many 
have argued going back almost 100 years--was certainly an awful lot to 
ask.
  I have already pointed out the contribution Senator Warner has made 
to this bill. But I must say as well that Senator Bennet of Colorado 
has been invaluable in his contributions. I just mentioned Senator 
Tester a moment ago for his contribution on talking about rural America 
and the importance of those issues. And Senator Merkley, as a member of 
the committee, on matters we included here dealing particularly with 
the mortgage reforms, the underwriting standards, the protections 
people have to go through, and credit cards as well--we passed the 
credit card bill--again, it was Senator Jeff Merkley of Oregon who 
played a critical role in that whole debate not to mention, of course, 
working with Carl Levin, one of the more senior Members here, having 
served for many years in the Senate. But the Merkley-Levin, Levin-
Merkley provisions in this bill have added substantial contributions to 
this effort. So I thank him for his contribution.
  I see my colleague from North Dakota is here. I suggest the absence 
of a

[[Page S5900]]

quorum and ask unanimous consent that the time be equally divided among 
both sides.
  The PRESIDING OFFICER. Without objection, it is so ordered. The clerk 
will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. DODD. I ask unanimous consent that the order for the quorum call 
be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. DODD. Mr. President, we listened to Senator Conrad, the chairman 
of the Budget Committee, address the budget point of order. I urge my 
colleagues to waive the point of order.
  We came up with an alternative offset in the conference committee, 
much at the insistence--and I thanked him for that--of Senator Brown of 
Massachusetts, looking for a better offset than the ones which were 
originally in the conference report. I know my colleague from Maine as 
well had reservations about what we originally included.
  The offset here ends TARP, which I presume most people would welcome 
with open arms, saving us $11 billion by terminating it early, as well 
as then complying with the request by the chairperson of the Federal 
Deposit Insurance Corporation, Sheila Bair, to provide for additional 
assessments to meet the obligations of the FDIC and the insurance fund. 
Both of those items provide the necessary offsets to the cost of this 
bill.
  The long-term deficit point of order is caused by the orderly 
liquidation authority for systemically significant financial 
institutions.
  Let me note that this critically important aspect of the legislation 
was developed in very close cooperation with Senator Shelby in the 
Shelby-Dodd amendment. It also reflects the bipartisan cooperation of 
Senators Corker and Warner. The Shelby-Dodd amendment passed this body 
overwhelmingly with over 90 votes.
  Even though the liquidation authority is the source of long-term 
budget costs, it is still 100 percent paid for. The Shelby-Dodd 
amendment and the Boxer amendment made sure that this would be the 
case. Let me repeat, the liquidation authority, which is the dominant 
source of the budget cost in the bill, is 100 percent paid for over 
time.
  The only reason that the liquidation authority scores at all is 
because of timing. The FDIC may initially have to borrow funds from the 
Treasury in order to wind down the failed company and put it out of 
business. Because it will take time to liquidate a large, 
interconnected financial company, there is a lag between when the funds 
are borrowed and when they are repaid by the sale of the failed 
companies' assets, its creditors and assessments on the industry if 
necessary.
  One more important point on budget scoring and the liquidation 
authority. CBO cannot factor in the costs to our nation of a failure to 
address the possibility of future bailouts. We have lived through that 
nightmare and it has cost our country dearly.
  Now I would like to discuss the way in which we address the budget 
consequences of the legislation. In particular, I would like to respond 
to some comments that have been made about the provisions increasing 
the long-term minimum target for the FDIC and thereby strengthening the 
Deposit Insurance Fund, a goal that no one can credibly argue with in 
light of the recent crisis.
  In fact, this provision is supported by FDIC Chairman Sheila Bair, 
and she has sent us a letter expressing her support. I will submit that 
for the Record at the end of this statement.
  Some of my colleagues on the other side of the aisle have claimed 
that the use of the FDIC in this way is unprecedented and questioned 
how this could count as budget savings or offsets and at the same time 
preserve the funds for bank failures.
  Let us clear up the misinformation. First, no FDIC funds are being 
spent on, or transferred to, other programs. Premiums paid by banks 
remain, as they have for over 75 years, in the FDIC fund solely to 
protect insured deposits.
  And counting FDIC premiums as budget savings in legislation 
absolutely does have precedent. We have to look no further than 
relatively recent actions of Republican Congresses to find them.
  Budget reconciliation legislation enacted in February 2006 and 
sponsored by my colleague from New Hampshire, who was then the Chairman 
of the Budget Committee, included FDIC reforms authored by my colleague 
from Alabama, who was then Chairman of the Banking Committee. Those 
provisions resulted in higher FDIC premiums, which CBO said yielded 
almost $2 billion in budget savings over 10 years.
  So, my colleagues from New Hampshire and Alabama in fact relied on 
reforms to the Deposit Insurance Fund to obtain savings that CBO 
favorably scored.
  And 10 years earlier, Congress attached to an omnibus spending bill 
enacted in September 1996 a provision calling for a special premium on 
thrifts to capitalize the FDIC's thrift insurance fund.
  The appropriators in that earlier Republican Congress justified 
higher discretionary spending based partly on the budget savings scored 
by CBO for the FDIC assessment.
  I would also like to respond to some comments that have been made 
about the treatment of TARP in this legislation.
  We end TARP in the conference report. With the comprehensive 
financial reform put in place under this bill, we think it is the right 
time to bring TARP to a close, ending it earlier than had been planned. 
I think that is something everyone should be happy about. And ending 
TARP saves the government money. That is not just my conclusion. It is 
the conclusion of the Congressional Budget Office, $11 billion in 
savings.
  It is true that the original TARP legislation passed as an emergency, 
its costs were declared an emergency when it passed, so rescinding 
those funds or ending the program now is ending spending that is 
considered ``emergency'' spending.
  But the savings are no less real because of that. Interestingly, my 
Republican colleague who has raised the point of order offered an 
amendment in conference that would have rescinded stimulus funding to 
pay for this bill. Why is that relevant? Because the stimulus money was 
also designated as an emergency, so it would have received the same 
accounting treatment here in the Senate as TARP. Both were emergencies.
  Both ending TARP early and rescinding stimulus funding would reduce 
the deficit, but the burden of cuts in stimulus funding would fall 
disproportionately on families and small businesses who have been 
victims of the economic fallout from the Wall Street crisis. Cutting 
such spending would be exactly the wrong thing to do as we try to get 
the economy back on track and people back to work.
  The fact is that overall this bill does not do damage to our 
budgetary outlook.
  It does make vital changes to make our financial system stronger and 
more stable and should be passed as soon as possible.
  So I urge my colleagues to support a motion to waive the long-term 
deficit point of order.

                                                   Federal Deposit


                                        Insurance Corporation,

                                    Washington, DC, June 29, 2010.
     Hon. Chris Dodd,
     Chairman, Committee on Banking, U.S. Senate, Washington, DC.
     Hon. Richard Shelby,
     Ranking Minority Member, Committee on Banking, U.S. Senate, 
         Washington, DC.
     Hon. Barney Frank,
     Chairman, Committee on Financial Services, House of 
         Representatives, Washington, DC.
     Hon. Spencer Bachus,
     Ranking Minority Member, Committee on Financial Services, 
         House of Representatives, Washington, DC.
       Dear Chairmen Dodd and Frank and Ranking Members Shelby and 
     Bachus: Thank you for your interest in our views regarding 
     increasing the Deposit Insurance Fund (DIF) ratio to 1.35.
       Federal deposit insurance promotes public confidence in our 
     nation's banking system by providing a safe place for 
     consumers' funds. Deposit insurance has provided much needed 
     stability throughout this crisis. Moreover, insured deposits 
     provide banks with a stable and cost-effective source of 
     funds for lending in their communities. Importantly, the DIF 
     is funded by the insured banking industry.
       A key measure of the strength of the insurance fund is the 
     reserve ratio, which is the amount in the DIF as a percentage 
     of the industry's estimated insured deposits. Current

[[Page S5901]]

     law requires us to maintain a reserve ratio of at least 1.15 
     percent. One of the lessons learned from the current crisis 
     is that a minimum reserve ratio of 1.15 is insufficient to 
     avoid the need for pro-cyclical assessments in times of 
     stress. One of my first priorities when I assumed the 
     Chairmanship of the FDIC in June of 2006 was to begin 
     building our reserves. Regrettably, there was insufficient 
     time before the crisis hit. Indeed, we started this crisis 
     with a DIF reserve ratio of 1.22 percent (as of December 31, 
     2007). Beginning in mid-2008, as bank failures increased and 
     the insurance fund incurred losses, the Fund balance and 
     reserve ratio dropped precipitously. The reserve ratio became 
     negative in the third quarter of 2009 and hit a low of 
     negative 0.39 percent as of December 31, 2009. To date, we 
     have collected more than $65 billion in assessments, and are 
     projected to collect another $80 billion by 2016 to restore 
     the fund.
       Given this experience, we believe it is clear that as the 
     economy strengthens and the banking system heals, the reserve 
     ratio needs to be increased. In fact, our Board has acted 
     through regulation to target the reserve ratio at 1.25 
     percent, and a further increase to 1.35 percent is consistent 
     with our view that the Fund should build up in good economic 
     times and be allowed to fall in poor economic times, while 
     maintaining relatively steady premiums throughout the 
     economic cycle, thereby reducing the procyclicality of the 
     assessment system.
       Please let me know if you have any questions or would like 
     to discuss further.
           Sincerely,
                                                   Sheila C. Bair.

  I again urge my colleagues to vote to waive the budget point of 
order, and, of course, I urge them as well to support the legislation 
when that vote occurs.


                     intent behind sections 691-621

  Mr. MERKLEY. Mr. President, I rise to engage my colleagues, Senators 
Dodd and Levin, in a colloquy regarding some key aspects of our 
legislative intent behind sections 619 through 621, the Merkley-Levin 
rule on proprietary trading and conflicts of interest as included in 
the conference report.
  First, I would like to clarify several issues surrounding the ``de 
minimis'' investment provisions in subsection (d)(4). These provisions 
complement subsection (d)(1)(G), which permits firms to offer hedge 
funds and private equity funds to clients. ``De minimis'' investments 
under paragraph (4) are intended to facilitate these offerings 
principally by allowing a firm to start new funds and to maintain 
coinvestments in funds, which help the firm align its interests with 
those of its clients. During the initial start-up period, during which 
time firms may maintain 100 percent ownership, the fund should be 
relatively small, but sufficient to effectively implement the 
investment strategy. After the start up period, a firm may keep an 
ongoing ``alignment of interest'' coinvestment at 3 percent of a fund. 
Our intent is not to allow for large, revolving ``seed'' funds to evade 
the strong restrictions on proprietary trading of this section, and 
regulators will need to be vigilant against such evasion. The aggregate 
of all seed and coinvestments should be immaterial to the banking 
entity, and never exceed 3 percent of a firm's Tier 1 capital.
  Second, I would like to clarify the intent of subsection (f)'s 
provisions to prohibit banking entities from bailing out funds they 
manage, sponsor, or advise, as well as funds in which those funds 
invest. The ``permitted services'' provisions outlined in subsection 
(f) are intended to permit banks to maintain certain limited ``prime 
brokerage'' service relationships with unaffiliated funds in which a 
fund-of-funds that they manage invests, but are not intended to permit 
fund-of-fund structures to be used to weaken or undermine the 
prohibition on bailouts. Given the risk that a banking entity may want 
to bail out a failing fund directly or its investors, the ``permitted 
services'' exception must be implemented in a narrow, well-defined, and 
arms-length manner and regulators are not empowered to create loopholes 
allowing high-risk activities like leveraged securities lending or 
repurchase agreements. While we implement a number of legal 
restrictions designed to ensure that prime brokerage activities are not 
used to bail out a fund, we expect the regulators will nevertheless 
need to be vigilant.
  Before I yield the floor to Senator Levin to discuss several 
additional items, let me say a word of thanks to my good friend, 
Chairman Dodd, for taking the time to join me in clarifying these 
provisions. I also honor him for his extraordinary leadership on the 
entire financial reform package. As a fellow member of the Banking 
Committee, it has been a privilege to work with him on the entire bill, 
and not just these critical provisions. I also would like to recognize 
Senator Levin, whose determined efforts with his Permanent Subcommittee 
on Investigations helped highlight the causes of the recent crisis, as 
well as the need for reform. It has been a privilege working with him 
on this provision.
  Mr. LEVIN. I thank the Senator, and I concur with his detailed 
explanations. His tireless efforts in putting these commonsense 
restrictions into law will help protect American families from reckless 
risk-taking that endangers our financial system and our economy.
  The conflicts of interest provision under section 621 arises directly 
from the hearings and findings of our Permanent Subcommittee on 
Investigations, which dramatically showed how some firms were creating 
financial products, selling those products to their customers, and 
betting against those same products. This practice has been likened to 
selling someone a car with no brakes and then taking out a life 
insurance policy on the purchaser. In the asset-backed securities 
context, the sponsors and underwriters of the asset-backed securities 
are the parties who select and understand the underlying assets, and 
who are best positioned to design a security to succeed or fail. They, 
like the mechanic servicing a car, would know if the vehicle has been 
designed to fail. And so they must be prevented from securing handsome 
rewards for designing and selling malfunctioning vehicles that 
undermine the asset-backed securities markets. It is for that reason 
that we prohibit those entities from engaging in transactions that 
would involve or result in material conflicts of interest with the 
purchasers of their products.
  First, I would like to address certain areas which we exclude from 
coverage. While a strong prohibition on material conflicts of interest 
is central to section 621, we recognize that underwriters are often 
asked to support issuances of asset-backed securities in the 
aftermarket by providing liquidity to the initial purchasers, which may 
mean buying and selling the securities for some time. That activity is 
consistent with the goal of supporting the offering, is not likely to 
pose a material conflict, and accordingly we are comfortable excluding 
it from the general prohibition. Similarly, market conditions change 
over time and may lead an underwriter to wish to sell the securities it 
holds. That is also not likely to pose a conflict. But regulators must 
act diligently to ensure that an underwriter is not making bets against 
the very financial products that it assembled and sold.
  Second, I would like to address the role of disclosures in relations 
to conflicts of interest. In our view, disclosures alone may not cure 
these types of conflicts in all cases. Indeed, while a meaningful 
disclosure may alleviate the appearance of a material conflict of 
interest in some circumstances, in others, such as if the disclosures 
cannot be made to the appropriate party or because the disclosure is 
not sufficiently meaningful, disclosures are likely insufficient. Our 
intent is to provide the regulators with the authority and strong 
directive to stop the egregious practices, and not to allow for 
regulators to enable them to continue behind the fig leaf of vague, 
technically worded, fine print disclosures.
  These provisions shall be interpreted strictly, and regulators are 
directed to use their authority to act decisively to protect our 
critical financial infrastructure from the risks and conflicts inherent 
in allowing banking entities and other large financial firms to engage 
in high risk proprietary trading and investing in hedge funds and 
private equity funds.
  Mr. President, I would like to thank Chairman Dodd for his 
extraordinary dedication in shepherding this massive financial 
regulatory reform package through the Senate and the conference 
committee. This has been a long process, and he and his staff have been 
very able and supportive partners in this effort.
  Mr. DODD. I thank the Senator, and I strongly concur with the 
intentions and interpretations set forth by the principal authors of 
these provisions, Senators Merkley and Levin, as reflecting the 
legislative intent of the conference committee. I thank Senators 
Merkley and Levin for their

[[Page S5902]]

leadership, which was so essential in achieving the conference report 
provisions governing proprietary trading and prohibiting conflicts of 
interest.


                     Assessing Individual Entities

  Mr. KOHL. Mr. President, I thank the Chairman for his continued work 
to ensure that appropriate resources are available to protect the 
economy from a future failure of a systemically risky financial 
institution and to help pay back taxpayers for the recent failures we 
experienced.
  With regard to assessments under the orderly liquidation authority of 
the bill, the bill requires that a risk-based matrix of factors be 
established by the FDIC, taking into account the recommendations of the 
Financial Stability Oversight Council, to be used in connection with 
assessing any individual entity. One of the factors listed in the 
bill's risk matrix provision would take into account the activities of 
financial entities and their affiliates. Is it the intent of that 
language that a consideration of such factors should specifically 
include the impact of potential assessments on the ability of an 
institution that is a tax-exempt, not-for-profit organization to carry 
out their legally required charitable and educational activities?
  As the Senator knows, many Members of the Senate--like me--feel 
strongly that we must ensure that our constituents and communities 
continue to have access to these vital resources, and any potential 
assessment on tax-exempt groups which are charitable and/or educational 
by mission could severely hamper these groups' ability to fulfill their 
obligations to carry out their legally required activities.
  Mr. DODD. Yes, that is correct. The language is not intended to 
reduce such charitable and educational activities that are legally 
required for tax-exempt, not-for-profit organizations that are so 
important to communities across the country. I thank the Senator for 
his continued help on these efforts.


                      section 603 trust companies

  Ms. COLLINS. Mr. President, I ask the chairman of the Senate Banking 
Committee, my colleague from Connecticut, Senator Dodd, to clarify the 
types of trust companies that fall within the scope of section 603(a), 
a provision that prohibits the Federal Deposit Insurance Corporation 
from approving an application for deposit insurance for certain 
companies, including certain trust companies, until 3 years after the 
date of enactment of this act.
  Mr. DODD. I would be glad to clarify the nature of trust companies 
subject to the moratorium under section 603(a). The moratorium applies 
to an institution that is directly or indirectly owned or controlled by 
a commercial firm that functions solely in a trust or fiduciary 
capacity and is exempt from the definition of a bank in the Bank 
Holding Company Act. It does not apply to a nondepository trust company 
that does not have FDIC insurance and that does not offer demand 
deposit accounts or other deposits that may be withdrawn by check or 
similar means for payment to third parties.
  Ms. COLLINS. I thank my colleague for his clarification.


                      Nonbank Financial Companies

  Ms. COLLINS. Mr. President, as we move to final passage of this 
historic legislation, I would like to thank Senator Dodd again for his 
leadership and strong support for my amendment to ensure that all 
insured depository institutions and depository institution holding 
companies regardless of size, as well as nonbank financial companies 
supervised by the Federal Reserve, meet statutory minimum capital 
standards and thus have adequate capital throughout the economic cycle. 
Those standards required under section 171 serve as the starting point 
for the development of more stringent standards as required under 
section 165 of the bill.
  I did, however, have questions about the designation of certain 
nonbank financial companies under section 113 for Federal Reserve 
supervision and the significance of such a designation in light of the 
minimum capital standards established by section 171. While I can 
envision circumstances where a company engaged in the business of 
insurance could be designated under section 113, I would not ordinarily 
expect insurance companies engaged in traditional insurance company 
activities to be designated by the council based on those activities 
alone. Rather, in considering a designation, I would expect the council 
to specifically take into account, among other risk factors, how the 
nature of insurance differs from that of other financial products, 
including how traditional insurance products differ from various off-
balance-sheet and derivative contract exposures and how that different 
nature is reflected in the structure of traditional insurance 
companies. I would also expect the council to consider whether the 
designation of an insurance company is appropriate given the existence 
of State-based guaranty funds to pay claims and protect policyholders. 
Am I correct in that understanding?
  Mr. DODD. The Senator is correct. The council must consider a number 
of factors, including, for example, the extent of leverage, the extent 
and nature of off-balance-sheet exposures, and the nature, scope, size, 
scale, concentration, interconnectedness, and mix of the company's 
activities. Where a company is engaged only in traditional insurance 
activities, the council should also take into account the matters you 
raised.
  Ms. COLLINS. Would the Senator agree that the council should not base 
designations simply on the size of the financial companies?
  Mr. DODD. Yes. The size of a financial company should not by itself 
be determinative.
  Ms. COLLINS. As the Senator knows, insurance companies are already 
heavily regulated by State regulators who impose their own, very 
different regulatory and capital requirements. The fact that those 
capital requirements are not the same as those imposed by section 171 
should not increase the likelihood that the council will designate an 
insurer. Does the Senator agree?
  Mr. DODD. Yes, I do not believe that the council should decide to 
designate an insurer simply based on whether the insurer would meet 
bank capital requirements.


                          Preemption Standard

  Mr. CARPER. Mr. President, I am very pleased to see that the 
conference committee on the Dodd-Frank Wall Street Reform and Consumer 
Protection Act retained my amendment regarding the preemption standard 
for State consumer financial laws with only minor modifications. I very 
much appreciate the effort of Chairman Dodd in fighting to retain the 
amendment in conference.
  Mr. DODD. I thank the Senator. As the Senator knows, his amendment 
received strong bipartisan support on the Senate floor and passed by a 
vote of 80 to 18. It was therefore a Senate priority to retain his 
provision in our negotiations with the House of Representatives.
  Mr. CARPER. One change made by the conference committee was to 
restate the preemption standard in a slightly different way, but my 
reading of the language indicates that the conference report still 
maintains the Barnett standard for determining when a State law is 
preempted.
  Mr. DODD. The Senator is correct. That is why the conference report 
specifically cites the Barnett Bank of Marion County, N.A. v. Nelson, 
Florida Insurance Commissioner, 517 U.S. 25(1996) case. There should be 
no doubt that the legislation codifies the preemption standard stated 
by the U.S. Supreme Court in that case.
  Mr. CARPER. I again thank the Senator. This will provide certainty to 
everyone--those who offer consumers financial products and to consumer 
themselves.

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