"Thank you, Mr. Chairman.
"Today, Secretary Geithner comes before the Committee to report on the work of the Financial Stability Oversight Council. The Council was established by Dodd-Frank and is required to report annually on the state of the U.S. economy, threats to financial stability, and the Council's activities.
"In this year's report, the Council describes a stagnating U.S. economy, with a mere 1.9 percent growth rate in the first quarter and a Federal deficit exceeding 7 percent of GDP. It also reports that U.S. households have seen only modest income growth, that access to mortgage credit is constrained, and that investment is restrained by "continued subdued confidence and elevated uncertainty."
"As the Council reports, the unemployment rate is still above 8 percent, while labor force participation has fallen to its lowest rate in 30 years. Nearly 4 years into this Administration, not even a Council headed by its own Treasury Secretary can hide the President's failure to revive the economy and put Americans back to work.
"Also troubling is the Council's view of Dodd-Frank. Its report describes at length all of the new Dodd-Frank rules but fails to mention their enormous cost to the economy. Nowhere does the report mention that these rules will require Americans to spend more than 24 million hours and billions of dollars every year to comply with them.
"If the Council wanted to understand why unemployment is high and mortgage lending is constrained, an examination of Dodd-Frank would have been a good place to start. More fundamentally, the Council's report overlooks the serious structural flaws in our regulatory system, which Dodd-Frank only made worse.
"For all of the President's talk about the need to reform Wall Street, Dodd-Frank has merely strengthened the advantages that large financial institutions possess in our financial system.
"First, Dodd-Frank imposes huge compliance costs on banks, conferring a competitive advantage on the large financial institutions that can more easily bear the burden. As result, the banking system has and will become even more concentrated in the largest firms thanks to Dodd-Frank.
"Second, Dodd-Frank failed to address the preferential treatment that our largest banks receive from bank regulators. For far too long, regulators have viewed themselves as advocates, and not supervisors, of large banks. They have developed cozy relationships with their banks and actively sought bank-supported regulatory changes, such as lower capital requirements. These close relationships, however, caused regulators to ignore red flags: from subprime loans, to insufficient capital, to dubious securitization practices.
"Moreover, regulators adopted a mindset that none of "their" large banks should ever fail on their watch. Consequentially, regulators have orchestrated a series of bailouts to benefit our largest banks, including the 1995 bailout of Mexico, the rescue of Long-Term Capital Management, and most recently, TARP.
"Unfortunately, Dodd-Frank preserved and codified this preferential treatment for large financial institutions. It solidified the close relationships between regulators and big banks by maintaining their pre-existing prudential regulators. In contrast, the regulator for the smallest banks, the OTS, was abolished. It also protected the big banks from bankruptcy by creating a new resolution mechanism to ensure that large institutions do not fail.
"All the while, Dodd-Frank did nothing to make financial regulators more accountable. Instead, Dodd-Frank made it more difficult to remove regulators who become captured by their banks. For example, the structure of the Consumer Financial Protection Bureau makes it effectively impossible to remove its director.
"I have said many times throughout the years that nothing focuses the mind like the specter of being fired. Not one regulator, however, was held accountable in the wake of the crisis. To add insult to injury, the very same regulators that missed the warning signs were then closely consulted on how to draft Dodd-Frank. In fact, staff from the very same agencies that failed us were detailed to Congress to help write the bill. This is the type of thing that outrages the American people, but is sadly business as usual in Washington.
"Secretary Geithner is no stranger to bank bailouts or bank regulation. He has played a key role in financial regulation for the past two decades. However, recent news reports about his handling of alleged LIBOR manipulations suggest that he, too, may have tempered his response to what can be characterized as a significant problem within the banking industry.
"Accordingly, today's hearing gives Secretary Geithner an opportunity to explain when he first learned of the allegations of LIBOR manipulation and how he did everything he could to protect the American taxpayer from any potential harm.
"Secretary Geithner will also have an opportunity to explain to this Committee and the American people how the President's policies are improving the economy.
"Thank you, Mr. Chairman."