[Congressional Record Volume 156, Number 105 (Thursday, July 15, 2010)]
[Extensions of Remarks]
[Pages E1350-E1351]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




   CONFERENCE REPORT ON H.R. 4173, DODD-FRANK WALL STREET REFORM AND 
                        CONSUMER PROTECTION ACT

                                 ______
                                 

                               speech of

                          HON. DARRELL E. ISSA

                             of california

                    in the house of representatives

                        Wednesday, June 30, 2010

  Mr. ISSA. Mr. Speaker, I oppose the Dodd-Frank bill. It is 
overreliant on vague, complex regulations administered by large 
bureaucracies. We should not be putting our trust in the wisdom of the 
same regulators who failed us during the last crisis.
  Instead, we must strive for true transparency and accountability in 
the financial sector, both for private companies and for the agencies 
that regulate them. The financial industry submits huge volumes of 
information to various regulators--financial statements, securities 
disclosures, banking reports, loan-level data, and much more. Too 
often, this information cannot be easily searched or analyzed because 
it is trapped within lengthy documents that must be manually reviewed.
  The financial crisis of 2008 demonstrated the dangers of opaque 
financial reporting. Complex transactions and products helped financial 
companies hide leverage from investors, while regulators failed to 
recognize systemic risks and ongoing frauds.
  Effective scrutiny of the financial industry's regulatory 
information, by the public as well as by regulators, could give us a 
fighting chance at avoiding the next crisis. And to enable effective 
scrutiny, that information needs to be easily searchable, sortable, and 
downloadable--and also publicly accessible as often as possible. 
Transparency and accountability in the financial sector represent our 
best hope that someone will spot hidden leverage and risk.
  As a member of the conference committee for this legislation, I felt 
it was my responsibility as a conferee to do my best to improve the 
bill. On the first day of the conference, I offered amendments to 
increase transparency throughout the financial industry by requiring 
financial regulatory agencies to designate electronic data standards 
for the financial information they receive from the industry. In other 
words, under my amendments, financial companies, securities issuers, 
and other regulated entities would apply consistent, unique electronic 
tags--like a bar code at the grocery store--to each individual element 
of the forms, statements, and filings they submit to the government, 
instead of using paper or plain text.
  In this technologically possible? Absolutely. In fact, some 
regulators are already using financial data standards. At the 
Securities and Exchange Commission, Chairman Christopher Cox championed 
new rules that require public companies to file their financial 
statements using a financial data standard called XBRL. Meanwhile, the 
FDIC has begun to require banks to use XBRL to apply electronic tags to 
each element of the call reports that they must file. In fact, XBRL has 
become a global data standard for financial information. It is already 
in use by regulators and stock exchanges in Australia, China, Japan, 
India, Korea, and many other countries. It transcends language barriers 
and differences in accounting standards to make financial information 
accessible to anyone, anywhere.
  Why are these technologies so important? Data standards in financial 
regulation can help us achieve--for the first time--full transparency 
and accountability for both the regulated private companies and the 
federal agencies that regulate them.
  For example, let's consider what has happened at the SEC. When 
companies submit their balance sheets and income statements in XBRL, 
every number in the balance sheet and every number in the income 
statement gets a unique electronic tag. That means market analysts and 
investors no longer need to manually hunt through lengthy documents and 
transcribe numbers into their own spreadsheets and databases. It makes 
companies' public financial information instantly searchable, sortable, 
and downloadable. And that means better transparency for publicly-
traded companies. It has become much easier and much cheaper to track 
companies' performance. It has become easier for the SEC--or anyone 
else--to apply automatic filters to check for indicators of fraud.
  For a second example, consider the experience of the FDIC, which now 
requires banks to file their call reports in XBRL. The electronic tags 
for every number in the call report helps banks to achieve better 
accuracy because it automatically checks all the mathematical 
relationships between numbers. Before the FDIC adopted XBRL, 30 percent 
of the call reports contained mathematical errors. Afterwards, the 
error rate fell to zero. Better accuracy also means better 
transparency.
  In the early successes at the SEC and the FDIC are any indication, 
financial data standards would allow the markets to see reckless 
behavior ahead of time, or at least allow us to know the underlying 
value of assets when the markets begin to melt.
  Financial data standards lead to better transparency for public 
companies and banks--but they also bring about better accountability 
for the regulators themselves. Why? Because when watchdog groups, 
financial media, and the public can slice and dice financial regulatory 
data for themselves, they can see for themselves whether the regulators 
are doing a good job at finding fraud and analyzing risk.
  For all these reasons, I felt strongly that true financial reform 
should build on the SEC's and the FDIC's experience by adopting 
financial data standards throughout the whole regulatory system--
securities disclosures, banking reports, swap transaction data, 
insurance reports, rating agencies' disclosures, and every other type 
of information collection that is discussed anywhere in the entire 
2,000-page bill. My amendments would have accomplished that, and would 
have also required the data to be made public wherever possible--with 
appropriate protections for trade secrets, privacy, and so on.
  When I proposed my amendments on that first day of the conference, 
and advocated for greater transparency in our financial system, 
Chairman Frank agreed with me. He accepted the idea of requiring the 
agencies to adopt financial data standards. At Chairman Frank's 
request, my staff worked with his staff, and with Chairman Towns' staff 
at the Oversight Committee, to draft--on a bipartisan basis--a 
comprehensive package of financial data standards amendments. On the 
last day of the conference I proposed the comprehensive package to 
Chairman Frank and the other

[[Page E1351]]

House conferees. They adopted it unanimously by voice vote.

  But this victory for transparency and accountability did not stand. 
In the wee hours of Friday morning--even though the House conferees had 
agreed unanimously on the amendments that Chairman Frank and I had 
worked out together--the Senate conferees stripped the amendments out 
of the bill, and the final conference report does not include them. 
There is no written record showing why my transparency amendments were 
not included. Ironically, they were removed in a completely opaque 
fashion. By blocking amendments that would have achieved transparency 
in the financial sector through technology, the authors of this 
legislation have made it more difficult for financial institutions and 
regulators to be held accountable, setting us up for more devastating 
financial failures in the future.
  I am very disappointed that this conference report ignores the need 
for greater transparency in the financial system by adopting proven 
technologies. Transparency is the only real solution to the corruption, 
hidden leverage, and ineffective bureaucracies that contributed to the 
previous financial crisis. Let me give you just a few examples.
  First, transparency through technology can stop corruption. Suppose 
the financial statements for Bernie Madoff's investment firm had been 
encoded using a financial data standard, and made publicly available. 
Analysts would have used software to automatically compare Madoff's 
results with others in the industry. It would have been clear to 
everyone that his results were suspiciously consistent--such an 
outlier, in fact, that fraud could be the only explanation. But the 
SEC's new XBRL reporting rules hadn't yet been adopted when Madoff was 
running his fraud, and in any event they still only apply to public 
companies. Therefore, only the sophisticated financial firms who paid 
for Madoff's data to be manually entered into their software systems 
noticed these patterns. Individual investors who trusted Madoff never 
learned how unusual his results were until it was too late. Neither did 
the SEC. The SEC relies on manual reviews, and never has developed the 
ability to do quantitative analyses. The SEC was as clueless as anyone. 
My amendments would have required the SEC to impose a financial data 
standard on investment advisers' filings, like Bernie Madoff's, and to 
make that data available when appropriate.
  Second, transparency through technology can reveal hidden leverage. 
The financial crisis is partly the result of complex mortgage-backed 
securities which became toxic because nobody could reliably estimate 
their value. The technology exists to make even very complex assets 
transparent. If we were to require financial companies that bundle 
mortgages into mortgage-backed securities to apply electronic tags to 
the underlying information--for instance, the ZIP code and payment 
history of each mortgage--and regularly update that information, then 
the securities would be easy to value. My amendments would have 
required the SEC to start exactly that project.
  Third, transparency through technology can make regulators more 
effective, less bureaucratic, and less wasteful. Just last Monday, the 
Wall Street Journal reported that a shady Ukrainian company whose sole 
employee and owner was a 79-year-old massage therapist had been cleared 
by the SEC to sell stock in this country--even though its filings 
reported no revenue and $100 in assets. I don't mean to suggest that 
small, newly-founded companies should not have access to the capital 
markets. But if the SEC had required initial filings to be encoded 
using a financial data standard, this company's lack of revenue and 
assets would have raised automatic red flags and triggered greater 
scrutiny. My amendments would have required the SEC to impose financial 
data standards on registration statements and prospectuses.
  In a letter to Chairman Frank, these principles were endorsed by all 
of the major independent financial services standards organizations, 
including the Financial Information Services Division of the Software 
and Information Industry Association, FIX Protocol Limited, the 
International Swaps and Derivatives Association, the International 
Securities Association for Institutional Trade Communication, SWIFT, 
and XBRL US. And my amendments, before the House conferees approved 
them unanimously, were agreed to by the SEC, the Fed, the FDIC, and the 
Office of the Comptroller of the Currency.
  My amendments would have imposed transparency through data standards 
across the whole financial system--for the Fed, for the FDIC, for the 
Comptroller of the Currency, for the CFTC, and especially for the SEC. 
But they were stripped out of the Dodd-Frank bill in the wee hours of 
Friday--even though my staff and Chairman Frank's staff had worked 
together to draft them, even though the regulators had approved them, 
and even though the House conferees had unanimously adopted them. 
Despite this setback, I am determined that transparency through 
technology is essential to foreclosing another financial meltdown. I am 
determined to pass legislation to ensure that financial disclosure 
information--and other types of regulatory information, too--is 
reported using data standards to make it fully searchable, sortable, 
and downloadable.
  Yesterday, when the conference briefly reconvened, Chairman Frank 
promised to try again. We will work together to introduce stand-alone 
financial transparency legislation with the same provisions, bring it 
through the Financial Services Committee, seek quick House passage, and 
again confront the Senate. Americans have the right to free access to 
regulatory information that is searchable, sortable, and downloadable, 
and they have the right to use that data to hold financial companies 
and regulatory agencies accountable. I will continue to fight for 
legislation to accomplish this, and transparency will have its day.