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Shelby on Dodd-Frank One-Year: No Mood to Celebrate Just Yet

Press Release

By:
Date:
Location: Washington DC

U.S. Senator Richard Shelby, ranking Republican on the Senate Committee on Banking, Housing and Urban Affairs, today made the following statement at a Committee hearing on the one-year anniversary of the Dodd-Frank Act.

Excerpts of Shelby's statement are immediately below in bold, followed by the full text of his prepared remarks:

"…for millions of Americans, the one-year anniversary of Dodd-Frank provides little comfort as they continue to deal with a harsh economic reality marked by little to no innovation, anemic economic growth and virtually no job creation.

"By any measure we were willing to meet our Democrat colleagues and the Administration more than half-way on a number of issues including consumer protection. Any hope for a bipartisan agreement evaporated, however, when the word came down from the Administration that it was going to be their way or the highway.

"…what matters most is TARP's negative long-term impact on the overall economy, which will dwarf any so-called "profit.' On that basis, TARP's record has not been good for American families. Since TARP was enacted, the unemployment rate has reached and stayed at record levels. Lending remains stagnant and millions of Americans continue to face foreclosure.

"Secretary Geithner took credit for the banking regulators having forced the largest financial institutions to increase their capital bases as "the most important step toward diminishing the risk of future crises.' For years, I have been arguing that capital standards have been inadequate.

"Fifty years ago, President Dwight D. Eisenhower famously admonished us to "guard against the acquisition of unwarranted influence' by the defense industry and the Pentagon. I am afraid, however, that his words have gone unheeded in this context, in that, the only thing Dodd-Frank has truly accomplished is the creation of a financial regulatory analog to the military-industrial complex.

"Secretary Geithner also claims that Republicans are blocking nominations "so that they can ultimately kill reform.' However, Senate Republicans have been clear that the structure of the Bureau of Consumer Financial Protection needs to be properly reformed before we consider any nominee to lead it.

"As I have explained and reiterated many times, there were numerous areas where Republicans and Democrats could have easily reached agreement. Unfortunately, however, the Administration decided early that there would be no real compromise.

"The result was the bill that this hearing purports to celebrate. I don't believe, Mr. Chairman, that the American people are in any mood to celebrate just yet."

STATEMENT OF SENATOR RICHARD C. SHELBY

Committee on Banking, Housing and Urban Affairs

July 21, 2011

"Thank you, Mr. Chairman.

"Yesterday, in a Wall Street Journal OpEd piece, Treasury Secretary Geithner claimed that financial reform was "designed to lay a stronger foundation for innovation, economic growth and job creation.' However, for millions of Americans, the one-year anniversary of Dodd-Frank provides little comfort as they continue to deal with a harsh economic reality marked by little to no innovation, anemic economic growth and virtually no job creation. The unemployment rate remains stubbornly above 9 percent, with more than 14 million Americans still out of work.

"Secretary Geithner also wrote that the Obama Administration "expected backing from both sides of the aisle' when the debate over financial reform began, implying that there wasn't any. The truth is that there was a great deal of agreement on a number of issues until the White House decided that the only issue that mattered was the creation of a massive new consumer bureaucracy.

"In fact, Chairman Dodd and I had agreed to create a consolidated banking regulator where the authorities of the Federal Reserve, OCC, OTS and FDIC would be joined in a single entity. It even had a name, the Financial Institutions Regulatory Authority. There was strong agreement that the current regulators had failed and radical reform was needed.

"I also agreed to elevate consumer protection to equal status with prudential regulation. I proposed giving the consumer protection division equal access to Congress and to provide it with dedicated funding. We even agreed to permit non-banks to be supervised and subject to enforcement.

"By any measure we were willing to meet our Democrat colleagues and the Administration more than half-way on a number of issues including consumer protection. Any hope for a bipartisan agreement evaporated, however, when the word came down from the Administration that it was going to be their way or the highway.

"A similar dynamic was at work in the Agriculture Committee where Senators Chambliss and Lincoln had agreed on a bipartisan derivatives title, until the former Senator from Arkansas was told that there was not going to be any compromise.

"Secretary Geithner also wrote "Senior Republican negotiators on the Senate Banking Committee were unable or unwilling to define a core set of reforms they could support.' Mr. Chairman, the first thing the Republican members of this committee did was to draft a set a core principles to guide our consideration of regulatory reform. I am holding in my hand that very list which addresses all of the major issues including 1) systemic risk regulation, 2) prudential regulation, 3) consumer protection, and 4) derivatives regulation.

"Also, Republicans filed hundreds of amendments based on this core set of reform principles. Prior to the bill's mark-up, we were informed, however, that not a single amendment would receive any Democrat support. Once again, it was their way or the highway.

"Secretary Geithner also wrote in his OpEd that "we have already turned a profit' on the TARP investments made in banks. However, as I have said in the past, claims of TARP's profitability are pre-mature. Many financial institutions have yet to fully repay their TARP funds and the taxpayer will still likely take losses on TARP's housing and auto bailout programs.

"Moreover, TARP used taxpayer dollars for very risky investments. A proper evaluation of the returns on any investment must appropriately adjust for risk. I believe such an evaluation would show that taxpayers were not adequately compensated for the large risks the Administration took with their money.

"In addition, what matters most is TARP's negative long-term impact on the overall economy, which will dwarf any so-called "profit.' On that basis, TARP's record has not been good for American families. Since TARP was enacted, the unemployment rate has reached and stayed at record levels. Lending remains stagnant and millions of Americans continue to face foreclosure.

"Secretary Geithner took credit for the banking regulators having forced the largest financial institutions to increase their capital bases as "the most important step toward diminishing the risk of future crises.' For years, I have been arguing that capital standards have been inadequate. While some bank regulators, such as former FDIC Chairman Sheila Bair, actively sought to increase bank capital standards, others remained on the sideline.

"One of the regulators who did nothing to improve bank capital standards before the last crisis was the President of the Federal Reserve Bank of New York. The New York Fed's supervisory responsibilities include the largest financial institutions that received the largest TARP bailouts during the crisis. Who was the New York Fed President who failed to oversee our largest banks and then presided over the TARP bailouts? None other than our current Treasury Secretary.

"Secretary Geithner further wrote that the regulators have "outlined major elements of reforms to bring oversight, transparency and greater stability to the $600 trillion derivatives market.' Republicans offered a derivative substitute amendment that accomplished all of these goals, while preserving Main Street's ability to hedge their business risks. Main Street businesses had nothing to do with the financial crisis. Nevertheless, Dodd-Frank will impose huge costs on them at a time when they can least afford it. The Secretary failed to mention that fact.

"Secretary Geithner said that the Obama Administration has started the process of "winding down Fannie Mae and Freddie Mac.' However, Fannie and Freddie's market share is actually increasing. They now account for 75 percent of all mortgage-backed securities issuance. In fact, with other government programs included, the Federal government now controls 97 percent of the market. Meanwhile, housing finance reform has not even begun in Congress.

"Secretary Geithner claims that success will "depend on making sure that we can write sensible rules that promote the health of the broader economy instead of the interests of individual firms.' However, politically-connected unions and other special interest groups were among biggest winners under Dodd-Frank. The Act contains an assortment of new corporate governance and executive compensation requirements that harm shareholders by empowering special interests in the boardroom and encouraging short-term thinking by managers.

"Fifty years ago, President Dwight D. Eisenhower famously admonished us to "guard against the acquisition of unwarranted influence' by the defense industry and the Pentagon. I am afraid, however, that his words have gone unheeded in this context, in that, the only thing Dodd-Frank has truly accomplished is the creation of a financial regulatory analog to the military-industrial complex.

"Dodd-Frank has created a cottage industry for Wall Street lawyers and special-interest lobbyists. It has turned the financial regulatory landscape into a labyrinth that can only be navigated by the politically-connected, making it a haven for crony capitalism.

"Secretary Geithner also claims that Republicans are blocking nominations "so that they can ultimately kill reform.' However, Senate Republicans have been clear that the structure of the Bureau of Consumer Financial Protection needs to be properly reformed before we consider any nominee to lead it.

"We have urged President Obama to adopt three specific reforms.

"First, establish a board of directors to oversee the Bureau. Diversifying the leadership of this untested and very powerful fledgling bureaucracy would ensure the consideration of multiple viewpoints in the Bureau's decision-making process.

"Second, subject the Bureau to the appropriations process to ensure that the Bureau has effective oversight and does not engage in wasteful or inappropriate spending.

"Third, establish a safety-and-soundness check for the prudential regulators. After all, one of the best consumer protections is a safe and sound bank.

"Finally, I believe the most disturbing claim made by the Secretary is that Republicans formed the "forces of opposition to reform.' This statement reflects the unfortunate view that anyone who doesn't support their idea of reform, must be against any reform.

"As I have explained and reiterated many times, there were numerous areas where Republicans and Democrats could have easily reached agreement. Unfortunately, however, the Administration decided early that there would be no real compromise.

"The result was the bill that this hearing purports to celebrate. I don't believe, Mr. Chairman, that the American people are in any mood to celebrate just yet.

"Thank you."


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