Financial Competitive Act of 2013

Floor Speech

BREAK IN TRANSCRIPT

Ms. WATERS. Mr. Speaker, I yield myself such time as I may consume.

Just last week, the government made an important step towards repairing our financial system after the worst financial crisis since the Great Depression. The Federal Reserve adopted final rules implementing Basel 3, including new capital requirements intended to bolster capital throughout the financial system. As losses mounted during the financial crisis, the woefully inadequate capital cushions at banks and others nearly brought our entire economy to a halt.

I also appreciate that the bank regulators have taken a commonsense approach, for which I had strongly advocated, related to community banks, including the treatment of residential mortgages. I applaud the banking regulators for finalizing these critical rules, which, along with the other Dodd-Frank reforms, will create the conditions for a robust and resilient financial sector.

This legislation before us today, H.R. 1341, requires the Financial Stability Oversight Council, or FSOC, to conduct a study of the potential effects of any differences between the U.S. and other jurisdictions' implementation of one aspect of the Basel 3 Accords--the credit valuation adjustment capital requirement related to derivatives transactions. The Basel signatory countries rightly agreed that banks should hold capital against the possibility that their counterparties, be they airlines or other banks, would default.

However, despite agreeing to do so under Basel 3, the European Union has made a preliminary decision to exclude the credit valuation adjustment from the calculation of European banks' capital requirements. As a result of the EU dropping this requirement, some U.S. banks think that they may be disadvantaged relative to their international counterparts.

Under the bill, the FSOC will study these and other differences between the regulators' implementation of this requirement. I agree that it is important for U.S. regulators to ensure that the way by which the CVA is calculated for domestic financial institutions includes an appropriate methodology that will not inadvertently create an unlevel playing field relative to foreign competitors. At the same time, we must be mindful not to engage in a global race to the bottom when it comes to capital requirements for our largest, most globally interconnected financial institutions. After all, the strength of the U.S. financial system is and will be based on its stability and transparency.

Importantly, during consideration of the bill, Mrs. Beatty of Ohio added language balancing the study's scope. As a result, the FSOC study will also consider the effects that failing to implement the CVA would have on the stability of U.S. financial markets in a period of market stress as well as how the regulators are fulfilling their statutory mandate to respond to emerging threats to financial stability.

With the addition of this language, the bill's study now balances not just the implications for derivatives market participants of this specific capital charge but also the effects on our economic stability. Undercapitalized derivatives exposures were one of the major drivers of the 2008 financial crisis. Market participants should hold capital against the risk of a counterparty defaulting or entering bankruptcy.

We can certainly consider how the implementation of the CVA could best be accomplished; but, again, we cannot engage in a global race to the bottom when it comes to capital rules. It is my hope that the FSOC will use the findings from this study to urge the other global regulators to expeditiously adopt standards that are as strong as ours.

I yield back the balance of my time.

BREAK IN TRANSCRIPT

Source