Economic Growth, Regulatory Relief, and Consumer Protection Act
Floor Speech
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Mrs. FEINSTEIN. Mr. President, I rise to discuss S. 2155. It is called the Economic Growth, Regulatory Relief, and Consumer Protection Act. One would think from the title that I would be all for it, but as one who went through the drop in the economy when we were on the brink of collapse, I believe this is a very bad bill.
Let me go back to that time. Banks were teetering and over 300 would fail in the next 3 years. For perspective, only three banks had failed in the year of 2007. Unemployment was skyrocketing. We lost $19 trillion in household wealth. Americans lost nearly 9 million jobs.
In my State of California, more than 2 million people were unemployed, 3\1/2\ million mortgages were at risk, and nearly 200,000 people filed for bankruptcy.
Now that the economy has recovered and unemployment has decreased from its high point of 10 percent during the crisis, I worry that my colleagues have forgotten the magnitude of this crisis. I simply cannot.
I remember sitting in caucuses hearing from our top financial officials about the potential for a total collapse of our economy. Treasury Secretary Timothy Geithner testified to the House Financial Services Committee that ``our financial system failed to do its job and came precariously close to failing altogether.'' That is not an exaggeration. For those of us who were here, who listened to the economists, who heard what was happening, we feared a total collapse. Personal conversations I had with these economists carried the most dire warnings. We should never get close to that point again.
Congress spent more than $400 billion on something labeled TARP, Troubled Asset Relief Program, to help stabilize the economy. It was very controversial at the time, but we have since recouped more than we spent on that bank program.
Congress then passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010, putting in place policies to prevent another financial crisis, including strong protections on the largest banks. Now, just 8 years later--how quickly we forget--we are considering loosening these protections.
Have we forgotten the lessons from 10 years ago and the devastating consequences for American families?
As with any bill we pass, I am open to looking at how it has been implemented and making adjustments as needed. For Dodd-Frank, I agree that community banks and credit unions shouldn't be regulated the same way as the largest banks in the country. I am open to adjusting some of these regulations for them, but this bill simply goes too far. It goes beyond targeted relief for small institutions.
The nonpartisan CBO, Congressional Budget Office, says the probability of a large bank failing or another financial crisis will go up if this bill is enacted. One provision I am particularly worried about would roll back regulations and supervision for banks with assets between $50 billion and $250 billion. These aren't just small community banks we are talking about. Instead, this would apply to some of the largest banks in our country.
Paul Volcker, the former chairman of the Federal Reserve, wrote that Countrywide, National City, and GMAC were all below $250 billion and ``required billions of dollars in official capital assistance and debt guarantees either for themselves or their acquiring institutions.''
Here is what Phil Angelides, who served as chairman of the Financial Crisis Inquiry Commission, said about this particular provision:
The bill's provisions to lift the asset threshold for enhanced prudential standards and supervision from $50 billion to $250 billion would substantially reduce oversight over 25 of the nation's 38 largest banks, including institutions of over $100 billion in assets that were deemed ``Too Big to Fail'' in 2009.
A number of financial institutions with less than $250 billion triggered the need for bailout assistance during the crisis and history has shown, time and time again, that the failure of financial firms that are not among the largest mega-banks can pose systemic threats to financial stability.
In addition to weakening these requirements, the bill can also weaken capital requirements for even the largest banks.
Sheila Bair, former Chair of the Federal Deposit Insurance Corporation, said this could lead up to a 30-percent capital reduction at some banks. Just think of that. She also raises a question that we should all take a moment to reflect on: Why does Congress want to start designating banking activities as low or no risk, when expert financial regulators were so wrong prior to the crisis?
Finally, this bill would amend the SAFE Act that I authored to ensure mortgage brokers and lenders meet minimum standards. This was necessary to curb the abusive lending practices we saw leading up to the financial crisis in which many consumers were taken advantage of through predatory lending.
This was a serious problem in California. Between March and June of 2008, 406 defendants were charged in 144 mortgage fraud-related cases, and approximately $1 billion in losses were attributed to these fraudulent acts.
The SAFE Act created a new system of registration and licensing that included background checks, education requirements, and testing to ensure that mortgage brokers and lenders could meet basic standards.
The bill before us, interestingly enough, would allow mortgage loan originators to operate without a license--without a license--for up to 120 days if they move from a bank to a nonbank or across State lines. Allowing this transition period without ensuring that lenders have passed the licensing test we required in the SAFE Act weakens the protections we put in place for consumers.
Before I conclude, I want to say that I appreciate this is a bipartisan bill. It has gone through the Banking Committee. I also understand the interest in ensuring regulations are appropriately tailored to the size and activity of financial institutions, but I am really worried that Members here have become too comfortable in our economic recovery and have forgotten where the path of deregulation ends.
I oppose this bill because it simply goes too far in deregulating some of our largest institutions and weakening the protections we put in place to prevent another financial crisis.
If we don't learn from past failures, we are doomed to repeat them.
Re S. 2155. Hon. Mike Crapo, Chairman, U.S. Senate Committee on Banking, Housing, and Urban Affairs, Washington, DC. Hon. Sherrod Brown, Ranking Member, U.S. Senate Committee on Banking, Housing, and Urban Affairs, Washington, DC.
I am writing this letter to express my strong opposition to S. 2155 by Senator Crapo which would weaken the financial system safeguards and taxpayer and consumer protections put in place in the wake of the 2008 financial crisis. The provisions of the bill, particularly when coupled with the clearly expressed deregulatory agenda of the Trump Administration and its key financial regulators, will once again put us on the path of exposing American taxpayers, our financial system, and our economy to significant risk.
As Chairman of the Financial Crisis Inquiry Commission, which conducted the nation's official inquiry into the causes of the financial crisis, I am deeply troubled by the potential passage of this legislation, considering the magnitude of the economic and human damage caused by the crisis and the effectiveness of post-crisis reforms in stabilizing our financial system and economy. That the Senate is taking up this bill on the floor at this time is particularly astounding given that next week will mark the 10th anniversary of the collapse of Bear Stearns, one of the seminal events in the unraveling of our financial markets that plunged our nation into the Great Recession.
Before the financial crisis abated, the federal government and the nation's taxpayers provided trillions of dollars of financial assistance through two dozen separate programs, including the Troubled Asset Relief Program (TARP), to bail out Wall Street. Even with this historic and unprecedented government response, the consequences of the crisis were dire. Millions lost their jobs and their homes, cities and towns across the nation were devastated, and trillions of dollars in wealth were stripped away from hard working families and businesses. The aspirations of millions of Americans were crushed in the financial assault on our nation, with all too many families and regions still struggling today from the fall-out of the crisis.
Without any compelling public policy rationale--other than the deceptive guise of aiding regional and community banks-- this bill now seeks to undo key bulwarks of public protection designed to avert future crises. Indeed, its provisions would put us on the road to re-creating conditions that the FCIC concluded led to the 2008 crisis. While the bill purports to be the ``Economic Growth, Regulatory Relief, and Consumer Protection Act'', only the ``regulatory relief'' portion of its title bears any relationship to reality. Like the ``Commodity Futures Modernization Act of 2000'', which ensured that over-the-counter derivatives would remain hidden in a dark market, or the House ``Financial CHOICE Act'', which would eviscerate the Dodd-Frank financial reforms, S. 2155's benign name deliberately obscures its detrimental effects.
Below are just some of my specific concerns with the legislation.
First, the bill's provisions to lift the asset threshold for enhanced prudential standards and supervision from $50 billion to $250 billion would substantially reduce oversight over 25 of the nation's 38 largest banks, including institutions of over $100 billion in assets that were deemed ``Too Big To Fail'' in 2009. A number of financial institutions with less than $250 billion triggered the need for bailout assistance during the crisis and history has shown, time and again, that the failure of financial firms that are not among the largest mega-banks can pose systemic threats to financial stability. While the bill purports to allow the Federal Reserve to ``reach back'' to institutions with more than $100 billion in assets, those provisions would be legally difficult to implement, given the likelihood of financial industry litigation; undermine the very purpose of having enhanced prudential standards in place prior to the emergence of risks; and undercut the Federal Reserve's current broad authority to impose such standards.
Secondly, while existing law allows the Federal Reserve to tailor financial stability rules for banks over $50 billion in assets, this bill would now require the Federal Reserve to do so for the banks still subject to enhanced prudential standards--those with assets over $250 billion. There is legitimate concern that this change, from ``may'' to ``shall'', will be implemented to reduce scrutiny of the 13 biggest banks in our nation.
Third, the bill will weaken stress testing of major financial institutions by, among other things, reducing the timeframe for testing from semi-annually for the nation's biggest banks to ``periodically'', which could be as infrequently as once every three years. What public purpose could possibly be served by diminishing the understanding by regulators of how major financial institutions would fare in the event of adverse financial and economic conditions?
Fourth, as Secretary Mnuchin himself has indicated, the legislation is likely to be implemented in a manner that deregulates 10 foreign megabanks--including but not limited to firms such as Credit Suisse and Deutsche Bank--heightening the risk that those banks could infect and debilitate our nation's financial system.
Fifth, the bill would punch a new hole in leverage ratios, leading to a substantial reduction in required capital at certain large banks, a troubling reversal of the drive toward stronger capital requirements in the wake of the crisis. The need for enhanced capital at major financial institutions has been one of the areas of broadest consensus emanating from the 2008 meltdown. It should also be noted that this proposal is wholly outside the realm of the bill's stated purpose of aiding regional and community banks.
Finally, this bill begins to chip away at the post-crisis reforms made to the woeful mortgage lending standards that the FCIC found to be a primary cause of the crisis. There is no sound policy rationale or good public purpose served by exempting most financial institutions from reporting mortgage lending data which they already collect; eliminating escrow requirements for subprime loans; or giving lenders a liability shield for adjustable rate mortgages underwritten at low teaser rates.
Based on the above concerns, I urge the Senate to reject S. 2155. Thank you for your consideration. Sincerely, Phil Angelides, Chairman, Financial Crisis Inquiry Commission (2009-2011).
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