FINANCIAL REFORM; Congressional Record Vol. 162, No. 177
(Senate - December 08, 2016)

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[Pages S6874-S6876]
From the Congressional Record Online through the Government Publishing Office []

                            FINANCIAL REFORM

  Mr. TOOMEY. Mr. President, we all remember the very severe financial 
crisis of 2008, which precipitated a very severe recession from which 
we have had a very, very weak recovery. In many ways, we are still 
trying to recover from that. I want to talk a little about that, and I 
want to talk about

[[Page S6875]]

the opportunity that is before us to make some very constructive 
changes to help us have a more robust recovery, the recovery we have 
been waiting for.
  Let's first review, very briefly, the causes of this financial crisis 
because the misguided response to it has contributed to our lack of a 
robust recovery. The causes of the financial crisis were of course 
principally government causes. It was principally the failure of 
government policy that created the financial crisis that led to this 
  What specific government policies? I would say several. Briefly, 
first of all, it was failed monetary policy. The policy in which the 
monetary authorities kept interest rates too low for too long actually 
had negative real interest rates, and that policy, quite predictably, 
created a bubble, a bubble in residential real estate, the explosion of 
which led to this crisis. This was compounded by the failed legislative 
policy, which actually required mortgage lenders, especially the 
government-sponsored enterprises of Fannie Mae and Freddie Mac, to lend 
money to people who were very unlikely to be able to pay it back. It is 
generally a very bad idea to lend money to people who are not able to 
pay it back, and it was a bad idea in this case as well.

  Thirdly, I would suggest that there was a failure of government 
regulators. There were many thousands of regulators crawling through 
all of the financial institutions of America, but somehow this gigantic 
bubble escaped their notice, and the interconnected nature of the firms 
and the exposures that firms had to financial risk seemed to escape 
their attention. The combination of a failed monetary policy, failed 
legislative policy, and failed regulatory policy was the government's 
enormous contribution to this crisis.
  I think everybody would agree that one of the things we learned from 
the financial crisis was just how inadequate the resolution mechanism 
was that we had for the failure of a large, complex financial 
institution. We didn't have an adequate one at all. The failure of 
Lehman Brothers was a good case in point, and the worry at the time was 
that if large financial institutions were simply allowed to fail, they 
would have a knockdown effect that would bring down the entire global 
financial network and beyond so that was the concern. I think it is 
valid that the resolution mechanism at the time was insufficient.
  In the wake of this crisis, Congress stepped in and decided we have 
to do something about it, and of course what they did was give us Dodd-
Frank, which is a law that is very badly flawed in many ways and 
failed, in part, because the authors failed to fully comprehend the 
cause of this crisis and because they took the wrong fundamental 
approach to dealing with it. Most fundamentally was a conceptual flaw 
which is that future financial crisis would be avoided by having the 
government impose enormous and very extensive control and not by 
freeing up market discipline to prevent the crisis from occurring. I 
think that is very much at the heart of the fundamental conceptual flaw 
of Dodd-Frank.
  Some of the specifics, broadly speaking, were to severely restrict 
what financial institutions could do, essentially turn medium- and 
large-sized banks into public utilities, give regulators, the same 
folks who missed the last crisis, virtually unlimited powers to 
micromanage these institutions with the thought that somehow in the 
future they will catch the next one. Then, as a failsafe in Dodd-Frank, 
the sort of final backstop, was to actually codify a category of 
financial institutions as too-big-to-fail. The terminology they use in 
Dodd-Frank is a little different. They call them systematically 
important financial institutions, but that is what it is. It is carving 
into law a category that we will deem too big to fail and the creation 
of an explicit bailout mechanism, whereby taxpayers will have to once 
again bail out these financial institutions if they fail.
  There are many problems with this whole approach, not the least of 
which is--there should be no institution in America that is too big to 
fail. A private for-profit organization, if it fails, it must be 
allowed to fail. There is no justification for forcing taxpayers to 
bail out any kind of firm, including banks. That is a bad and 
fundamental flaw, but there are many adverse consequences that have 
come along. We have seen a huge concentration in banking assets 
directly in response to Dodd-Frank that arguably concentrates risks. We 
have seen costs to consumers rise, and costs for financial services 
that consumers need has gone up. Liquidity and securities have gone 
done, and that just means pension funds and savers have to pay more to 
invest their savings in the stocks and bonds they are relying on for 
their retirement security. Innovation has dried up because bureaucrats 
have to approve everything and anything a financial institution can do.
  By the way, it actually destroyed a whole industry. This is not 
reported on nearly as much as I think it should be, but Dodd-Frank, 
together with the abnormally low interest rates we have had once again, 
has completely ended the entire industry of startup community banking. 
It is worth noting that in the United States of America, prior to the 
passage of Dodd-Frank, Americans launched new banks for decades. It is 
something business folks would routinely do. A handful of 
businesspeople would pull their resources together, start up a bank, 
contribute the capital, do their own banking business there, and then 
what would they do? They would provide lending services to consumers 
and small businesses in their towns and communities. They would be 
there for the local pizza shop that needs to add a walk-in cooler in 
the back or the local HVAC repair shop that needs to buy another pickup 
truck. It is community banks that provide the lending for these kinds 
of small business opportunities that allow families and individuals to 
live their dream and create jobs all across America. That is what 
community banks did for years.
  For decades, prior to Dodd-Frank, we launched, on average, about 125 
new community banks per year--many more in really good times, fewer in 
bad times but about 125 per year. From the day they signed Dodd-Frank 
into law in July of 2010 through this afternoon, we have launched two 
new community banks in America--two in over 6 years. This industry is 
done. It is dead. It doesn't happen anymore because when business folks 
sit around the table and say, gee, wouldn't it be a good idea to launch 
a bank because we need one in our community, we don't have a small 
community bank willing to provide these loans, what they have 
discovered very quickly is, they can't possibly make a go at it because 
the regulatory expense and costs are so staggering that they can't see 
their way to a surviving business model. As a result, we don't have 
these community banks anymore. They aren't being launched and haven't 
been for years. Who knows how many small businesses haven't launched 
and haven't been able to grow because people could never get the 
funding. Let me just promise you, Citigroup is not in the business of 
doing the kind of lending that new community banks do every single day. 
This is just one of the many problems, and one of the most fundamental 
ones is that taxpayers have this big contingent liability hanging over 
their head in the form of that bailout mechanism I alluded to earlier--
this requirement that they will be forced to bail out big financial 
institutions all over again. Dodd-Frank codifies it. Dodd-Frank spells 
out exactly how it should happen.

  It is my strongly held view that we need to reform Dodd-Frank. It is 
overdue. It needs substantial reforms, and those reforms should include 
making sure taxpayers never have to bail out another giant institution. 
That is just wrong. That should not be on the table. In fact, it should 
be precluded.
  A second issue is, taxpayers should not be forced, through the 
mechanisms of this bill, to make banking products more expensive for 
consumers--less available, more expensive, fewer products and services. 
We can do this while we maintain our ability to deter, detect, prevent, 
and prosecute fraud when it occurs. That is absolutely a fundamental 
responsibility we have, and we can do that.
  Most importantly, we have to enable a vigorous, competitive market 
for financial services to respond to consumers with new services and 
new products at ever-lower costs and to have a market discipline that 
forces those institutions to behave prudently because their future 
depends on it.

[[Page S6876]]

  We are coming into a new Congress soon, and I am hoping our 
Democratic colleagues will work with us to correct the fundamental 
flaws in Dodd-Frank, repeal the things that don't work, and roll back 
the problems with this legislation, but the incoming Senate minority 
leader is on record in interviews already declaring they will not do 
so. They will not help us in this endeavor. They are not interested and 
can deny us the 60 votes we will need to make substantive reforms to 
  Let me suggest to my colleagues that--first of all, I hope there is a 
change of heart on the other side. I hope, first and foremost, as we go 
through this process, that some of our Democratic colleagues will work 
with us and will agree that there are changes that need to be made and 
that we can make them, hopefully, with a very broad consensus. If that 
is not possible, I suggest there is an alternative. The alternative is 
that we use a budget resolution that would contain reconciliation 
instructions to the Banking Committee. For that matter, this could 
apply to other authorizing committees, but I am specifically referring 
to the Banking Committee. The reason that is important is because that 
will allow us to pass subsequent legislation in compliance with the 
reconciliation instructions that can pass the Senate with a simple 
majority vote. That is not my preferred way to do it, but we have to do 
this. We have to get this done. This change in Dodd-Frank will have a 
very profound impact on our economy. It will encourage and enable us to 
have growth that we have been waiting for, for too long. This device 
might be what we need to get there.
  Let me point out that there are precedents for this. The Deficit 
Reduction Act of 2005 used a budget resolution to create reconciliation 
instructions, which in turn switched some of the FHA funding streams 
from mandatory spending to discretionary spending, from spending that 
is on autopilot to spending that is at the annual discretion of 
Congress. That was done through exactly this mechanism.
  The FDIC and NCUA are deposit insurance funds. They were restructured 
and reformed, and it was done under the same device using the same 
procedural mechanism. Those changes were possible because they had a 
very significant budgetary impact, and that is one of the criteria for 
using the reconciliation device, which in these cases was something on 
the order of a couple of billion dollars of taxpayer savings over 10 
  Reforming Dodd-Frank can save taxpayers a lot of money. The CFPB 
alone, over 10 years, is expected to consume--on its current path--over 
$6 billion. That is a lot of money. Some real sensible, thorough 
reforms there could save taxpayers.
  The Congressional Budget Office estimates that the Orderly 
Liquidation Fund will cost taxpayers $20 billion over the next 10 
years. By the way, that $20 billion is bailout money. We can fix that. 
The office of financial research costs over $1 billion.
  There are many cases in which we can save serious taxpayer money, in 
the process reduce our deficits, thereby achieve the goal of the 
reconciliation instructions given to the Banking Committee, and along 
the way help encourage stronger economic growth by modifying some of 
these misguided policies in Dodd-Frank.
  I suggest that the election we just went through was about several 
things, but one of them was certainly shaking up the status quo and 
getting some things done and not just continuing what we have always 
been doing. Well, for too long now we have been putting up with the 
Dodd-Frank bill that is costing us a lot of economic growth and 
opportunity. I am hoping our Democratic colleagues will work with us so 
we can begin to make the constructive changes we need, but, if not, I 
think we should use all tools available to get this job done.
  I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. HEINRICH. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.