[Congressional Record Volume 156, Number 57 (Wednesday, April 21, 2010)]
[Senate]
[Pages S2519-S2521]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. BROWN of Ohio (for himself, Mr. Kaufman, Mr. Casey, Mr. 
        Merkley, Mr. Whitehouse, and Mr. Harkin):
  S. 3241. A bill to provide for a safe, accountable, fair, and 
efficient banking system, and for other purposes; to the Committee on 
Banking, Housing, and Urban Affairs.
  Mr. BROWN of Ohio. Mr. President, when you look at Wall Street and 
you look at the relationship between far too many Senators and Wall 
Street, that is what got us into this mess. For the last 10 years the 
deregulation of the Bush administration, the people they appointed to 
watch, such as the head of mine safety in the Bush years was a mining 
executive, we paid the price for that, the people in my State, people 
in West Virginia. Too often families pay the price for a government not 
aggressive enough to regulate mine safety. We paid the price in this 
country because we didn't have a government aggressive enough to make 
the banks and Wall Street behave. That is why they were able to 
overreach.
  That is why the legislation Senator Kaufman and I are introducing, 
with Senators Casey, Whitehouse, Merkley, and others, will address the 
issue of too big to fail. Too big to fail is not what you do if these 
banks are in trouble, how you pull them apart when they are about to 
fail, and we want to make sure we don't spend taxpayer dollars to bail 
them out. We make sure they don't hurt the whole financial system. Too 
big to fail means don't let them get too big. Even Alan Greenspan, 
hardly an ally in regulating the banking system, says too big to fail 
means too big. That is what Senator Kaufman and I are addressing in our 
legislation.
  Let me give some numbers. Fifteen years ago, the six largest U.S. 
banks had assets equal to 17 percent, one-seventh. Fifteen years ago, 
the six largest U.S. banks had assets equal to 17 percent of overall 
GDP. Today the six largest banks have assets equal to 63 percent of 
overall GDP. Three of these megabanks have close to $2 trillion of 
assets on their balance sheets.
  When that happens, we are setting ourselves up for one more round of 
serious problems. That is why homeowners in Youngstown lost their 
homes. That is why retirees in Sidney, OH lost a lot of their wealth. 
That is why workers in Newark, OH lost jobs--because we had a banking 
system that was overreaching, excessive, that became too greedy, and we 
didn't do enough about it.
  Here is what has happened. The Ohio manufacturers I talked to this 
morning want to grow. They want to hire people. They have orders. They 
have capacity. They just can't get loans. Three of the largest banks 
slashed their SBA lending by 86 percent over the last year. SBA loans 
went from 4,200 in 2007 in Ohio alone to 2,100. At the same time banks 
have increased their Wall Street trading by 23 percent. Something was 
wrong in the last 10 years. We paid the price in the last 2 years. But 
something is still wrong when these banks get bigger and bigger. They 
trade more and more, and they lend to Main Street less and less.
  That is why the legislation Senator Kaufman and I introduced with 
several other Senators today speaks to this. We need banks to serve 
this country. Ultimately, it is which side one is on. Are you going to 
side with Wall Street or Main Street?
  Today in the Agriculture Committee we had Republicans and Democrats 
together passing legislation, strong legislation to regulate 
derivatives. It is a first, good bipartisan step. Senator Grassley, a 
Republican from Iowa, joined all of us on the committee to pass a 
strong bill, not a bill that Wall Street helped to write but a bill 
that works for American consumers, American small business, American 
homeowners and workers.
  I yield to Senator Kaufman.
  Mr. KAUFMAN. I agree with what Senator Brown is saying. This is a 
very complex bill. It is a very complex area. But what we are talking 
about is a very simple proposition. We can either limit the size and 
leverage of too big to fail financial institutions, such as the bill 
which Senator Brown and I are offering now will do or we will suffer 
the economic consequences of their potential failure later. I 
personally believe breaking apart too big to fail banks is a necessary 
first step in preventing another cycle of boom, bust, and bailout. Even 
if they do that, this bill is required if, in fact, we are going to 
limit too big to fail.
  This debate is a test of whether the power of that idea can spread 
and gain support. Although it is clearly the safest way to avoid 
another financial crisis, this idea must overcome tremendous resistance 
from Wall Street banks and their politically powerful campaigns against 
any kind of structural financial reform. Moreover, the idea must 
overcome the inertia and caution in a Congress drawn to easier ideas 
that may work. But how much should we gamble that they will work? 
Limiting size and leverage are fail-safe

[[Page S2520]]

provisions to prevent a dangerous outcome. Senator Brown and I are 
proposing a complementary idea to limit the size and leverage, not a 
substitute for breaking the banks apart.
  The current banking bill has many important provisions we support. 
But under its approach, we must hope the financial stability oversight 
council can identify systemic risks before it is too late. We must hope 
that regulators will be emboldened to act in a timely manner when 
before, in the recent past, they failed to act. We must hope better 
transparency in financial data will produce early warning signals of 
systemic dangers so clear that a council and panel of judges will 
unhesitatingly agree. We must hope that capital requirements will be 
set properly in relation to risks that all too often remain 
purposefully hidden from view. We must hope that resolution authority 
will work, when we know it has no cross-border authority to resolve 
global financial institutions.
  Under the current bill, we must hope all future Presidents will 
appoint regulators as determined to carry out the same strict measures 
preached belatedly by today's regulators who have been converted by the 
traumatic experience of their own failures.
  All rules to restrict excessive risk taking in banking have a half 
life. That is because the financial sector is full of very smart people 
with an incentive to find their way around the rules, particularly to 
load up on risk, as this is what provides them their excessive profits 
and gigantic bonuses. I would rather not pin the future of the American 
economy on so much hope. I would rather Congress act now, definitively 
and responsibly, to end too big to fail.
  The changes in regulations envisioned today in the bill we are 
proposing would help initially, particularly until the next free market 
candidate who wins appoints regulators who only believe in self-
regulation. This bill establishes hard lines. One of the greatest 
sayings is: Good fences make good neighbors. This builds the fences. 
Then we let the regulators do it, and we don't have to worry about the 
President picking the right regulators. Our bill would provide a 
legislative size and leverage restriction that would last far longer 
than the half life of who is appointed to be regulator. We want this to 
operate for a generation.
  In 1933, our forebears, after the Great Depression, made hard rules. 
They passed Glass-Steagall. They set up the FDIC. They set rules 
against margins, and they set the uptick rule. We should do no less. 
Remember, when they passed those bills in 1933, they helped us avoid a 
financial crisis for almost 50 years.
  Some argue we need massive banks, but recent studies show that with 
over $100 billion in assets--and by the way, these banks, as Senator 
Brown said, have over $2 trillion worth of assets--financial 
institutions no longer achieve additional economies of scale. They 
simply become dangerous concentrations of financial power that benefit 
from an implicit government guarantee that they will be saved if they 
fail. With this implicit guarantee, these firms will continue to have 
every incentive to use massive amounts of short-term debt to finance 
the purchase of risky assets. This bill would deal with their ability 
to be able to do that and would stop it. They would go on and be able 
to do this without us. They have done it in the past, and there is no 
reason to think they won't do it in the future until they cause the 
next crisis and taxpayers must bail them out again. While $100 billion 
banks would be smaller, they are not small banks. Such banks would have 
no trouble competing around the world.
  Under this bill, we would still have banks far bigger than even that 
size. People say: Look at other countries. Look what they are doing. 
Just because other countries subsidize megabanks banks that could send 
those countries spiraling into a financial crisis should not make us 
want to do the same.

  Everyone agrees--as the Senator from Arizona said--the most important 
thing is too big to fail. How much can we risk that by doing what other 
countries are doing, when they are creating banks that are clearly too 
big to fail? Most people in the oil industry did well under the breakup 
of Standard Oil, including its shareholders, and the breakup of AT&T 
helped the telecom industry become more dynamic, competitive, and 
profitable.
  The current Senate bill contains many important provisions that 
address the causes of the financial crisis, but why risk leaving 
oversized institutions in place when they potentially are too big to 
fail? Instead, we should meet the challenge of the moment and have the 
courage to act, as in this bill, to limit the size and practices of 
these literally colossal financial institutions, the stability of which 
are a threat to our economy. This bill is the best hope to ensure 
future decades of financial stability and the livelihoods of the 
American people. This bill will put the days of too big to fail forever 
behind us.
  Mr. BROWN of Ohio. I thank Senator Kaufman.
  Some people think about this as a pretty big step, to decide we want 
to limit the size of banks. It is not something we like to do. We don't 
want to do more regulation than we have to. We don't want to tell 
successful companies not to grow. But when we look at what has happened 
in the past, as Senator Kaufman said, we did this right in the 1930s, 
and it protected our financial system, with a few hiccups but no 
serious problems until the end of this last decade, when President Bush 
and the Congress, starting with President Clinton--President Bush 
accelerated it and weakened regulation--repealed regulation and 
appointed, you might use the term ``lapdogs''--that might not be a 
senatorial sounding word.
  Mr. KAUFMAN. Lapdogs is another way of saying people who believe 
self-regulation will work.
  Alan Greenspan also was quoted as saying we should breakup the banks; 
Standard Oil wasn't bad. At the time he said, after it was over, a year 
later he gave a speech and said: I really thought self-regulation would 
work. I am dismayed that it didn't.
  The way I put it, it is as if there were a whole group of folks, not 
just in the financial regulatory area but all over the government, who 
basically believed the markets are great. I am a big believer in 
markets, but I also like football. The idea that someone would say: 
Football is great, but those referees keep blowing their damn whistles. 
Let's get the referees off the field so football players can be 
football players. We know what would happen if we pulled all the 
referees off the field in a game. I wouldn't want to be in the second 
pileup.
  That is what we said with this. We said we are going to pull the 
referees off the field and see what happens. These were good people. 
They just didn't believe they had to regulate, and we are now seeing 
the results.
  People say to us, when we propose these things--I have had several 
press people say to me--why don't we leave it up to the regulators? 
They can set these numbers. We shouldn't set these numbers.
  Let me read from a couple things. The 1970 Bank Holding Company Act 
amendments gave the Fed the power to terminate a company's authority to 
engage in nonbanking activities, basically doing what we are talking 
about doing, if it finds such action is necessary to prevent undue 
concentration of resources--I wonder if that went on recently--
decreased or unfair competition, conflicts of interest, or unsound 
banking practices. The Fed had the power to do this. They did not do 
it.
  The Financial Institutions Reform Recovery Enforcement Act also gave 
regulators the power to restrict an institution's growth and limit its 
size.
  What we are talking about now is giving the regulators essentially 
what they already have in the present bill. What Senator Brown and I 
are saying--and the other cosponsors--is, the buck stops here. We 
should tell the regulators what these percentages are going to be. 
Because if we leave it up to the regulators, as Senator Brown said, 
these are very powerful people and very powerful institutions.
  They hire the very best people to come and make their arguments.
  So if you are sitting there running a regulatory agency and you are 
saying: Oh my God, I don't want to do this, I don't want to shrink 
these things down--and remember one other thing too. As bad as things 
were in this latest crisis, think about what has happened during this 
crisis. They have all exploded. What did we have happen? JPMorgan Chase 
now includes Washington Mutual, a $400 billion bank.

[[Page S2521]]

Bank of America now includes Merrill Lynch. We can go on from there. 
Wells Fargo now has Wachovia. These things were big. We had this mess. 
We deregulated. We put the regulators in. We changed laws. Now they are 
bigger. As the Senator says, their assets are 63 percent of the gross 
domestic product of this country. Fifteen years ago, they were 17 
percent of gross domestic product.
  What do we have to do before someone sends the message that these 
things are too big and that this Congress not pass the buck to the 
regulators, who did not do the job in the past? Let me just say this. I 
think the world of our regulators now. I do not think there are people 
in regulating now who basically believe they should not be regulated.
  In 1933, we made a decision that helped us through three generations. 
What are we doing as Senators on the floor passing legislation based on 
the fact: I trust my regulators now. Why are we not passing legislation 
that will work over the next two or three generations--something that 
will work whether we get a President who believes in the fact that we 
should have a market or not, whether we have a good regulator or a bad 
regulator? Why shouldn't the Senate of the United States do its job and 
basically lay out restrictions of the kind that are in this bill so the 
regulators have them? Then they can enforce it. They can do the 
enforcement, which is their job. We should send a clear message to 
people that this is what we have to do.
  Mr. BROWN of Ohio. Exactly. I say to Senator Kaufman, you made a 
point maybe 5 minutes ago that some of the smartest people in the 
country are working on Wall Street. There is a huge incentive for smart 
people to go to Wall Street and be creative and invent new financial 
instruments to stay, in many ways, a step ahead of the regulators, in 
some sense, a step ahead of the ``sheriff,'' if you will. Those 
regulators, who are paid probably one-tenth or one-hundredth--
regulators are paid decent middle-class salaries that most Americans 
would be very happy with. But some of these very smart people on Wall 
Street are paid 100 times, 1,000 times--millions, tens of millions of 
dollars, and there is a huge incentive for them to figure out how to 
stay ahead of the regulators.
  That is why it is so important that we have strong regulators. We 
always work to do that, and we have good regulators. It is important 
that a President appoint people who have the public interest in mind, 
which Presidents have not always done in the last decade. It is 
important that we write different rules, and that is exactly what we 
want to do to keep these banks from being so big.
  We had problems with rating agencies that gamed the system. We had 
problems with mortgage brokers. We had problems with Wall Street. We 
had problems with people creating these new CDOs and other financial 
instruments, particularly these so-called synthetic ones that had no 
real basis in any wealth creation for society, only wealth creation for 
each other. Ultimately, that does not work for Wall Street. It 
certainly does not work for our country.
  So in summary, as to this legislation that five or six of us are 
introducing today, we will likely offer it as an amendment in the next 
week or two. We ask our colleagues to support it. If we are going to 
deal with too big to fail, we surely want to deal with it on the end if 
there are banks that are about to fail. But we need to, sort of, ahead 
of time, in anticipation, deal with it by not letting these banks--no 
matter how good the regulators are--not letting these banks get too 
big.
  Mr. KAUFMAN. We just have to give the regulators the tools they need 
to do their job, and the guidelines because we know what these 
guidelines are. These are not really terribly strict guidelines; they 
are just to have the ability to stop what is going on now, to get banks 
back to the size where they can be managed.
  As Senator Brown said, these banks have a competitive advantage 
because when they are too big to fail, not only do we have to worry 
about bailing them out, but all their interest rate charges are lower. 
We know that. The interest rate charges on CDs with these major banks--
they get higher interest rates than the other banks, and it is unfair 
competition for all the other small banks around this country.
  As I said in the beginning, this is a very simple proposition: Is the 
Senate going to do its job to make sure we have in place the ability to 
keep these banks from being too big to fail and preparing so we never 
have to get to the resolution authority?
  Mr. BROWN of Ohio. If we do what Senator Kaufman said, if we do this 
right, it will take care of this problem so it does not happen in the 
next two or three generations, the way people in the 1930s did, or if 
we do not do it right, we are back at this in 5 or 10 or 15 years.
  Mr. KAUFMAN. By the way, let me say one thing about that. I am not 
for overregulation. But can you imagine, if we have another problem, 
what the regulation would be like then? Do you know what the proposals 
would be on this floor if, in fact, we have another problem? It would 
be draconian. It is important for all of us. We all care about our 
capital markets. One of the things that drive this country and make us 
great is the capital markets. We want them to be credible and we want 
them to be fair and we want them to work.
  So we want to make sure we do not get faced with this. I think that 
is exactly what Senator Brown and I are trying to do. We are trying to 
do a little bit of prevention here so we never get to that end of the 
road where we have to get involved in resolution authority.
  Mr. BROWN of Ohio. These capital markets which worked so well for 
many years are not working for local manufacturers, for small 
businesses today.
  Mr. KAUFMAN. Right.
  Mr. BROWN of Ohio. I thank Senator Kaufman.
                                 ______