[Congressional Record Volume 156, Number 105 (Thursday, July 15, 2010)]
[Pages S5902-S5933]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


  Mr. KERRY. Mr. President, the conference report to accompany H.R. 
4173, the Dodd-Frank Wall Street reform bill, creates a mechanism 
through which the Financial Stability Oversight Council may determine 
that material financial distress at a U.S. nonbank financial company 
could pose such a threat to the financial stability of the United 
States that the company should be supervised by the Board of Governors 
of the Federal Reserve System and should be subject to heightened 
prudential standards. It is my understanding that in making such a 
determination, the Congress intends that the council should focus on 
risk factors

[[Page S5903]]

that contributed to the recent financial crisis, such as the use of 
excessive leverage and major off-balance-sheet exposure. The fact that 
a company is large or is significantly involved in financial services 
does not mean that it poses significant risks to the financial 
stability of the United States. There are large companies providing 
financial services that are in fact traditionally low-risk businesses, 
such as mutual funds and mutual fund advisers. We do not envision 
nonbank financial companies that pose little risk to the stability of 
the financial system to be supervised by the Federal Reserve. Does the 
chairman of the Banking Committee share my understanding of this 
  Mr. DODD. The Senator from Massachusetts is correct. Size and 
involvement in providing credit or liquidity alone should not be 
determining factors. The Banking Committee intends that only a limited 
number of high-risk, nonbank financial companies would join large bank 
holding companies in being regulated and supervised by the Federal 

                          Capital Requirements

  Ms. COLLINS. Mr. President, I understand that it is the intent of 
paragraph 7 of section 171(b) of this legislation to require the 
Federal banking agencies, subject to the recommendations of the 
council, to develop capital requirements applicable to insured 
depository institutions, depository institution holding companies, and 
nonbank financial companies supervised by the Board of Governors that 
are engaged in activities that are subject to heightened standards 
under section 120. It is well understood that minimum capital 
requirements can help to shield various public and private stakeholders 
from risks posed by material distress that could arise at these 
entities from engaging in these activities. It is also understood and 
recognized that minimum capital requirements may not be an appropriate 
tool to apply under all circumstances and that by prescribing section 
171 capital requirements as the correct tool with respect to companies 
covered by paragraph 7, it should not be inferred that capital 
requirements should be required for any other companies not covered by 
paragraph 7.
  Mrs. SHAHEEN. I also understand that the intent of this section is 
not to create any inference that minimum capital requirements are the 
appropriate standard or safeguard for the council to recommend to be 
applied to any nonbank financial company that is not subject to 
supervision by the Federal Reserve under title I of this legislation, 
with respect to any activity subject to section 120. Rather, the 
council should have full discretion not to recommend the application of 
capital requirements to any such nonbank financial company engaged in 
any such activity.
  Mr. DODD. I concur with Senator Collins and Senator Shaheen. Section 
171 of this legislation came from an amendment that Senator Collins 
offered on the Senate floor, and I truly appreciate the constructive 
contribution she has made to this legislative process. My understanding 
also is that the capital requirements under paragraph 7 are intended to 
apply only to insured depository institutions, depository institution 
holding companies, and nonbank financial companies supervised by the 
Board of Governors. I thank my friends from Maine and New Hampshire for 
this clarification.

                      Insurance Company Definition

  Mr. NELSON of Nebraska. Mr. President, first, I would like to commend 
Chairman Dodd for his hard work on the Wall Street reform bill and for 
maintaining an open and transparent process while developing this 
legislation. With regard to the orderly liquidation authority under 
title II of the bill, an ``insurance company'' is defined in section 
201 as any entity that is engaged in the business of insurance, subject 
to regulation by a State insurance regulator, and covered by a State 
law that is designed to specifically deal with the rehabilitation, 
liquidation, or insolvency of an insurance company. Is it the intent of 
this definition that a mutual insurance holding company organized and 
operating under State insurance laws should be considered an insurance 
company for the purpose of this title?
  Mr. DODD. Yes, that is correct. It is intended that a mutual 
insurance holding company organized and operating under State insurance 
laws should be considered an insurance company for the purpose of title 
II of this legislation. I thank the Senator from Nebraska for this 

                      Independent Representatives

  Mrs. LINCOLN. Mr. President, as chairman of the Agriculture, 
Nutrition, and Forestry Committee, I became acutely aware that our 
pension plans, governmental investors, and charitable endowments were 
falling victim to swap dealers marketing swaps and security-based swaps 
that they knew or should have known to be inappropriate or unsuitable 
for their clients. Jefferson County, AL, is probably the most infamous 
example, but there are many others in Pennsylvania and across the 
country. That is why I worked with Senator Harkin and our colleagues in 
the House to include protections for pension funds, governmental 
entities, and charitable endowments in the Dodd-Frank Wall Street 
Reform and Consumer Protection Act.
  Those protections--set forth in section 731 and section 764 of the 
conference report--place certain duties and obligations on swap dealers 
and security-based swap dealers when they deal with special entities. 
One of those obligations is that a swap dealer or the security-based 
swap dealer entering into a swap or security-based swap with a special 
entity must have a reasonable basis for believing that the special 
entity has an independent representative evaluating the transaction. 
Our intention in imposing the independent representative requirement 
was to ensure that there was always someone independent of the swap 
dealer or the security-based swap dealer reviewing and approving swap 
or security-based swap transactions. However, we did not intend to 
require that the special entity hire an investment manager independent 
of the special entity. Is that your understanding, Senator Harkin?
  Mr. HARKIN. Yes, that is correct. We certainly understand that many 
special entities have internal managers that may meet the independent 
representative requirement. For example, many public electric and gas 
systems have employees whose job is to handle the day-to-day hedging 
operations of the system, and we intended to allow them to continue to 
rely on those in-house managers to evaluate and approve swap and 
security-based swap transactions, provided that the manager remained 
independent of the swap dealer or the security-based swap dealer and 
met the other conditions of the provision. Similarly, the named 
fiduciary or in-house asset manager--INHAM--for a pension plan may 
continue to approve swap and security-based swap transactions.

                             Foreign Banks

  Mrs. LINCOLN. Mr. President, I wish to engage my colleague, Senator 
Dodd, in a brief colloquy related to the section 716, the bank swap 
desk provision.
  In the rush to complete the conference, there was a significant 
oversight made in finalizing section 716 as it relates to the treatment 
of uninsured U.S. branches and agencies of foreign banks. Under the 
U.S. policy of national treatment, which has been part of U.S. law 
since the International Banking Act of 1978, uninsured U.S. branches 
and agencies of foreign banks are authorized to engage in the same 
activities as insured depository institutions. While these U.S. 
branches and agencies of foreign banks do not have deposits insured by 
the FDIC, they are registered and regulated by a Federal banking 
regulator, they have access to the Federal Reserve discount window, and 
other Federal Reserve credit facilities.
  It is my understanding that a number of these U.S. branches and 
agencies of foreign banks will be swap entities under section 716 and 
title VII of Dodd-Frank. Due to the fact that the section 716 safe 
harbor only applies to ``insured depository institutions'' it means 
that U.S. branches and agencies of foreign banks will be forced to push 
out all their swaps activities. This result was not intended. U.S. 
branches and agencies of foreign banks should be subject to the same 
swap desk push out requirements as insured depository institutions 
under section 716. Under section 716, insured depository institutions 
must push out all swaps and security-based swaps activities except for 
specifically enumerated activities, such as hedging and other similar 
risk mitigating activities directly related

[[Page S5904]]

to the insured depository institution's activities, acting as a swaps 
entity for swaps or security-based swaps that are permissible for 
investment, and acting as a swaps entity for cleared credit default 
swaps. U.S. branches and agencies of foreign banks should, and are 
willing to, meet the push out requirements of section 716 as if they 
were insured depository institutions.
  This oversight on our part is unfortunate and clearly unintended. 
Does my colleague agree with me about the need to include uninsured 
U.S. branches and agencies of foreign banks in the safe harbor of 
section 716?
  Mr. DODD. Mr. President, I agree completely with Senator Lincoln's 
analysis and with the need to address this issue to ensure that 
uninsured U.S. branches and agencies of foreign banks are treated the 
same as insured depository institutions under the provisions of section 
716, including the safe harbor language.

                               End Users

  Mrs. LINCOLN. Mr. President, I will ask unanimous consent to have 
printed in the Record a letter that Chairman Dodd and I wrote to 
Chairmen Frank and Peterson during House consideration of this 
Conference Report regarding the derivatives title. The letter 
emphasizes congressional intent regarding commercial end users who 
enter into swaps contracts.
  As we point out, it is clear in this legislation that the regulators 
only have the authority to set capital and margin requirements on swap 
dealers and major swap participants for uncleared swaps, not on end 
users who qualify for the exemption from mandatory clearing.
  As the letter also makes clear, it is our intent that the any margin 
required by the regulators will be risk-based, keeping with the 
standards we have put into the bill regarding capital. It is in the 
interest of the financial system and end user counterparties that swap 
dealers and major swap participants are sufficiently capitalized. At 
the same time, Congress did not mandate that regulators set a specific 
margin level. Instead, we granted a broad authority to the regulators 
to set margin. Again, margin and capital standards must be risk-based 
and not be punitive.
  It is also important to note that few end users will be major swap 
participants, as we have excluded ``positions held for hedging or 
mitigating commercial risk'' from being considered as a ``substantial 
position'' under that definition. I would ask Chairman Dodd whether he 
concurs with my view of the bill.
  Mr. DODD. I agree with the Chairman's assessment. There is no 
authority to set margin on end users, only major swap participants and 
swap dealers. It is also the intent of this bill to distinguish between 
commercial end users hedging their risk and larger, riskier market 
participants. Regulators should distinguish between these types of 
companies when implementing new regulatory requirements.
  Mrs. LINCOLN. Mr. President, I ask unanimous consent to have printed 
in the Record the letter that Chairman Dodd and I wrote to Chairmen 
Frank and Peterson to which I referred.

                           investment adviser

  Mrs. LINCOLN. Mr. President, I rise to discuss section 409 of the 
Dodd-Frank bill, which excludes family offices from the definition of 
investment adviser under the Investment Advisers Act. In section 409, 
the SEC is directed to define the term family offices and to provide 
exemptions that recognize the range of organizational, management, and 
employment structures and arrangement employed by family offices, and I 
thought it would be worthwhile to provide guidance on this provision.
  For many decades, family offices have managed money for members of 
individual families, and they do not pose systemic risk or any other 
regulatory issues. The SEC has provided exemptive relief to some family 
offices in the past, but many family offices have simply relied on the 
``under 15 clients'' exception to the Investment Advisers Act, and when 
Congress eliminated this exception, it was not our intent to include 
family offices in the bill.
  The bill provides specific direction for the SEC in its rulemaking to 
recognize that most family offices often have officers, directors, and 
employees who may not be family members, and who are employed by the 
family office itself or affiliated entities owned, directly or 
indirectly, by the family members. Often, such persons co-invest with 
family members, which enable those persons to share in the profits of 
investments they oversee and better align the interests of those 
persons with those of the family members served by the family office. 
In addition, family offices may have a small number of co-investors 
such as persons who help identify investment opportunities, provide 
professional advice, or manage portfolio companies. However, the value 
of investments by such other persons should not exceed a de minimis 
percentage of the total value of the assets managed by the family 
office. Accordingly, section 409 directs the SEC not to exclude a 
family office from the definition by reason of its providing investment 
advice to these persons.
  Mr. DODD. I thank the Senator. Pursuant to negotiations during the 
conference committee, it was my desire that the SEC write rules to 
exempt certain family offices already in operation from the definition 
of investment adviser, regardless of whether they had previously 
received an SEC exemptive order. It was my intent that the rule would: 
exempt family offices, provided that they operated in a manner 
consistent with the previous exemptive policy of the Commission as 
reflected in exemptive orders for family offices in effect on the date 
of enactment of the Dodd-Frank Act; reflect a recognition of the range 
of organizational, management and employment structures and 
arrangements employed by family offices; and not exclude any person who 
was not registered or required to be registered under the Advisers Act 
from the definition of the term ``family office'' solely because such 
person provides investment advice to natural persons who, at the time 
of their applicable investment, are officers, directors or employees of 
the family office who have previously invested with the family office 
and are accredited investors, any company owned exclusively by such 
officers, directors or employees or their successors-in-interest and 
controlled by the family office, or any other natural persons who 
identify investment opportunities to the family office and invest in 
such transactions on substantially the same terms as the family office 
invests, but do not invest in other funds advised by the family office, 
and whose assets to which the family office provides investment advice 
represent, in the aggregate, not more than 5 percent of the total 
assets as to which the family office provides investment advice.
  Mrs. LINCOLN. I appreciate the Senator's explanation and ask that the 
Senator work with me to make this point in a technical corrections 
  Mr. DODD. I agree that this position should be raised in a 
corrections bill and I look forward to working with the Senator towards 
this goal on this point.
  Mrs. LINCOLN. I thank the Senator for his leadership and his 
assistance and cooperation in ensuring the passage of this important 

                              VOLCKER RULE

  Mrs. BOXER. Mr. President, I wish to ask my good friend, the Senator 
from Connecticut and the chairman of the Banking Committee, to engage 
in a brief discussion relating to the final Volcker rule and the role 
of venture capital in creating jobs and growing companies.
  I strongly support the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, including a strong and effective Volcker rule, which is 
found in section 619 of the legislation.
  I know the chairman recognizes, as we all do, the crucial and unique 
role that venture capital plays in spurring innovation, creating jobs 
and growing companies. I also know the authors of this bill do not 
intend the Volcker rule to cut off sources of capital for America's 
technology startups, particularly in this difficult economy. Section 
619 explicitly exempts small business investment companies from the 
rule, and because these companies often provide venture capital 
investment, I believe the intent of the rule is not to harm venture 
capital investment.
  Is my understanding correct?
  Mr. DODD. Mr. President, I thank my friend, the Senator from 
California, for her support and for all the work we have done together 
on this important issue. Her understanding is correct.

[[Page S5905]]

  The purpose of the Volcker rule is to eliminate excessive risk taking 
activities by banks and their affiliates while at the same time 
preserving safe, sound investment activities that serve the public 
interest. It prohibits proprietary trading and limits bank investment 
in hedge funds and private equity for that reason. But properly 
conducted venture capital investment will not cause the harms at which 
the Volcker rule is directed. In the event that properly conducted 
venture capital investment is excessively restricted by the provisions 
of section 619, I would expect the appropriate Federal regulators to 
exempt it using their authority under section 619(J).

                            Captive Finance

  Ms. STABENOW. Mr. President, I would like to discuss the derivatives 
title of the Wall Street reform legislation with chairman of the Senate 
Agriculture, Nutrition, and Forestry Committee, Senator Lincoln.
  I would like to first commend the Senator and her staff's hard work 
on this critically important bill, which brings accountability, 
transparency, and oversight to the opaque derivatives market.
  For too long the over-the-counter derivatives market has been 
unregulated, transferring risk between firms and creating a web of 
fragility in a system where entities became too interconnected to fail.
  It is clear that unregulated derivative markets contributed to the 
financial crisis that crippled middle-class families. Small businesses 
and our manufacturers couldn't get the credit they needed to keep the 
lights on, and many had to close their doors permanently. People who 
had saved money and played by the rules lost $1.6 trillion from their 
retirement accounts. More than 6 million families lost their homes to 
foreclosure. And before the recession was over, more than 7 million 
Americans had lost their jobs.
  The status quo is clearly not an option.
  The conference between the Senate and the House produced a strong 
bill that will make sure these markets are accountable and fair and 
that the consumers are back in control.
  I particularly want to thank the Senator for her efforts to protect 
manufacturers that use derivatives to manage risks associated with 
their operations. Whether it is hedging the risks related to 
fluctuating oil prices or foreign currency revenues, the ability to 
provide financial certainty to companies' balance sheets is critical to 
their viability and global competitiveness.
  I am glad that the conference recognizes the distinction between 
entities that are using the derivatives market to engage in speculative 
trading and our manufacturers and businesses that are not speculating. 
Instead, they use this market responsibly to hedge legitimate business 
risk in order to reduce volatility and protect their plans to make 
investments and create jobs.
  Is it the Senator's understanding that manufacturers and companies 
that are using derivatives to hedge legitimate business risk and do not 
engage in speculative behavior will not be subjected to the capital or 
margin requirements in the bill?
  Mrs. LINCOLN. I thank the Senator for her efforts to protect 
manufacturers. I share the Senator's concerns, which is why our 
language preserves the ability of manufacturers and businesses to use 
derivatives to hedge legitimate business risk.
  Working closely with the Senator, I believe the legislation reflects 
our intent by providing a clear and narrow end-user exemption from 
clearing and margin requirements for derivatives held by companies that 
are not major swap participants and do not engage in speculation but 
use these products solely as a risk-management tool to hedge or 
mitigate commercial risks.
  Ms. STABENOW. Again, I appreciate the Senator's efforts to work with 
me on language that ensures manufacturers are not forced to 
unnecessarily divert working capital from core business activities, 
such as investing in new equipment and creating more jobs. As you know, 
large manufacturers of high-cost products often establish wholly owned 
captive finance affiliates to support the sales of its products by 
providing financing to customers and dealers.
  Captive finance affiliates of manufacturing companies play an 
integral role in keeping the parent company's plants running and new 
products moving. This role is even more important during downturns and 
in times of limited market liquidity. As an example, Ford's captive 
finance affiliate, Ford Credit, continued to consistently support over 
3,000 of Ford's dealers and Ford Credit's portfolio of more than 3 
million retail customers during the recent financial crisis--at a time 
when banks had almost completely withdrawn from auto lending.
  Many finance arms securitize their loans through wholly owned 
affiliate entities, thereby raising the funds they need to keep 
lending. Derivatives are integral to the securitization funding process 
and consequently facilitating the necessary financing for the purchase 
of the manufacturer's products.
  If captive finance affiliates of manufacturing companies are forced 
to post margin to a clearinghouse it will divert a significant amount 
of capital out of the U.S. manufacturing sector and could endanger the 
recovery of credit markets on which manufacturers and their captive 
finance affiliates depend.
  Is it the Senator's understanding that this legislation recognizes 
the unique role that captive finance companies play in supporting 
manufacturers by exempting transactions entered into by such companies 
and their affiliate entities from clearing and margin so long as they 
are engaged in financing that facilitates the purchase or lease of 
their commercial end user parents products and these swaps contracts 
are used for non-speculative hedging?
  Mrs. LINCOLN. Yes, this legislation recognizes that captive finance 
companies support the jobs and investments of their parent company. It 
would ensure that clearing and margin requirements would not be applied 
to captive finance or affiliate company transactions that are used for 
legitimate, nonspeculative hedging of commercial risk arising from 
supporting their parent company's operations. All swap trades, even 
those which are not cleared, would still be reported to regulators, a 
swap data repository, and subject to the public reporting requirements 
under the legislation.
  This bill also ensures that these exemptions are tailored and narrow 
to ensure that financial institutions do not alter behavior to exploit 
these legitimate exemptions.
  Based on the Senator's hard work and interest in captive finance 
entities of manufacturing companies, I would like to discuss briefly 
the two captive finance provisions in the legislation and how they work 
together. The first captive finance provision is found in section 
2(h)(7) of the CEA, the ``treatment of affiliates'' provision in the 
end-user clearing exemption and is entitled ``transition rule for 
affiliates.'' This provision is available to captive finance entities 
which are predominantly engaged in financing the purchase of products 
made by its parent or an affiliate. The provision permits the captive 
finance entity to use the clearing exemption for not less than two 
years after the date of enactment. The exact transition period for this 
provision will be subject to rulemaking. The second captive finance 
provision differs in two important ways from the first provision. The 
second captive finance provision does not expire after 2 years. The 
second provision is a permanent exclusion from the definition of 
``financial entity'' for those captive finance entities who use 
derivatives to hedge commercial risks 90 percent or more of which arise 
from financing that facilitates the purchase or lease of products, 90 
percent or more of which are manufactured by the parent company or 
another subsidiary of the parent company. It is also limited to the 
captive finance entity's use of interest rate swaps and foreign 
exchange swaps. The second captive finance provision is also found in 
Section 2(h)(7) of the CEA at the end of the definition of ``financial 
entity.'' Together, these 2 provisions provide the captive finance 
entities of manufacturing companies with significant relief which will 
assist in job creation and investment by our manufacturing companies.
  Ms. STABENOW. I agree that the integrity of these exemptions is 
critical to the reforms enacted in this bill and to the safety of our 
financial system. That is why I support the strong anti-abuse 
provisions included in the bill.

[[Page S5906]]

Would you please explain the safeguards included in this bill to 
prevent abuse?
  Mrs. LINCOLN. It is also critical to ensure that we only exempt those 
transactions that are used to hedge by manufacturers, commercial 
entities and a limited number of financial entities. We were surgical 
in our approach to a clearing exemption, making it as narrow as 
possible and excluding speculators.
  In addition to a narrow end-user exemption, this bill empowers 
regulators to take action against manipulation. Also, the Commodity 
Futures Trading Commission and the Securities Exchange Commission will 
have a broad authority to write and enforce rules to prevent abuse and 
to go after anyone that attempts to circumvent regulation.
  America's consumers and businesses deserve strong derivatives reform 
that will ensure that the country's financial oversight system promotes 
and fosters the most honest, open and reliable financial markets in the 
  Ms. STABENOW. I thank the Chairman for this opportunity to clarify 
some of the provisions in this bill. I appreciate the Senator's help to 
ensure that this bill recognizes that manufacturers and commercial 
entities were victims of this financial crisis, not the cause, and that 
it does not unfairly penalize them for using these products as part of 
a risk-mitigation strategy.
  It is time we shine a light on derivatives trading and bring 
transparency and fairness to this market, not just for the families and 
businesses that were taken advantage of but also for the long-term 
health of our economy and particularly our manufacturers.

                           Stable Value Funds

  Mr. HARKIN. Mr. President, as chairman of the Health, Education, 
Labor, and Pensions Committee, the pensions community approached me 
about a possible unintended consequence of the derivatives title of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act. They were 
concerned that the provisions regulating swaps might also apply to 
stable value funds.
  Stable value funds are a popular, conservative investment choice for 
many employee benefit plans because they provide a guaranteed rate of 
return. As I understand it, there are about $640 billion invested in 
stable value funds, and retirees and those approaching retirement often 
favor those funds to minimize their exposure to market fluctuations. 
When the derivatives title was put together, I do not think anyone had 
stable value funds or stable value wrap contracts--some of which could 
be viewed as swaps--specifically in mind, and I do not think it is 
clear to any of us what effect this legislation would have on them.
  Therefore, I worked with Chairman Lincoln, Senator Leahy, and Senator 
Casey to develop a proposal to direct the SEC and CFTC to conduct a 
study--in consultation with DOL, Treasury, and State insurance 
regulators--to determine whether it is in the public interest to treat 
stable value funds and wrap contracts like swaps. This provision is 
intended to apply to all stable value fund and wrap contracts held by 
employee benefit plans--defined contribution, defined benefit, health, 
or welfare--subject to any degree of direction provided directly by 
participants, including benefit payment elections, or by persons who 
are legally required to act solely in the interest of participants such 
as trustees.
  If the SEC and CFTC determine that it is in the public interest to 
regulate stable value fund and wrap contracts as swaps, then they would 
have the power to do so. I think this achieves the policy goals 
underlying the derivatives title while still making sure that we don't 
cause unintended harm to people's pension plans.
  Mrs. LINCOLN. Mr. President, I share Chairman Harkin's concern about 
possible unintended consequences the Dodd-Frank Wall Street Reform and 
Consumer Protection Act could have on pension and welfare plans which 
provide their participant with stable value fund options. These stable 
value fund options and their contract wrappers could be viewed as being 
a swap or a security-based swap. As Chairman Harkin has stated, there 
is a significant amount of retirement savings in stable value funds, 
$640 billion, which represents the retirement funds of millions of 
hardworking Americans. One of my major goals in this legislation was to 
protect Main Street. We should try to avoid doing any harm to pension 
plan beneficiaries. When the stable value fund issue was brought to my 
attention, I knew it was something we had to address. That is why I 
worked with Chairman Harkin and Senators Leahy and Casey to craft a 
provision that would give the CFTC and the SEC time to study the issue 
of whether the stable value fund options and/or the contract wrappers 
for these stable value funds are ``swaps'' or some other type of 
financial instrument such as an insurance contract. I think subjecting 
this issue to further study will provide a measure of stability to 
participants and beneficiaries in employee benefit plans--including 
those participants in defined benefit pension plans, 401(k) plans, 
annuity plans, supplemental retirement plans, 457 plans, 403(b) plans, 
and voluntary employee beneficiary associations--while allowing the 
CFTC and SEC to make an informed decision about what the stable value 
fund options and their contract wrappers are and whether they should be 
regulated as swaps or security-based swaps. It is a commonsense 
solution, and I am proud we were able to address this important issue 
which could affect the retirement funds of millions of pension 

                              volcker rule

  Mr. BAYH. I thank the Chairman. With respect to the Volcker Rule, the 
conference report states that banking entities are not prohibited from 
purchasing and disposing of securities and other instruments in 
connection with underwriting or market making activities, provided that 
activity does not exceed the reasonably expected near term demands of 
clients, customers, or counterparties. I want to clarify this language 
would allow banks to maintain an appropriate dealer inventory and 
residual risk positions, which are essential parts of the market making 
function. Without that flexibility, market makers would not be able to 
provide liquidity to markets.
  Mr. DODD. The gentleman is correct in his description of the 

                            Event Contracts

  Mrs. FEINSTEIN. I thank Chairman Lincoln and Chairman Dodd for 
maintaining section 745 in the conference report accompanying the Dodd-
Frank Wall Street Reform and Consumer Protection Act, which gives 
authority to the Commodity Futures Trading Commission to prevent the 
trading of futures and swaps contracts that are contrary to the public 
  Mrs. LINCOLN. Chairman Dodd and I maintained this provision in the 
conference report to assure that the Commission has the power to 
prevent the creation of futures and swaps markets that would allow 
citizens to profit from devastating events and also prevent gambling 
through futures markets. I thank the Senator from California for 
encouraging Chairman Dodd and me to include it. I agree that this 
provision will strengthen the government's ability to protect the 
public interest from gaming contracts and other events contracts.
  Mrs. FEINSTEIN. It is very important to restore CFTC's authority to 
prevent trading that is contrary to the public interest. As you know, 
the Commodity Exchange Act required CFTC to prevent trading in futures 
contracts that were ``contrary to the public interest'' from 1974 to 
2000. But the Commodity Futures Modernization Act of 2000 stripped the 
CFTC of this authority, at the urging of industry. Since 2000, 
derivatives traders have bet billions of dollars on derivatives 
contracts that served no commercial purpose at all and often threaten 
the public interest.
  I am glad the Senator is restoring this authority to the CFTC. I hope 
it was the Senator's intent, as the author of this provision, to define 
``public interest'' broadly so that the CFTC may consider the extent to 
which a proposed derivative contract would be used predominantly by 
speculators or participants not having a commercial or hedging 
interest. Will CFTC have the power to determine that a contract is a 
gaming contract if the predominant use of the contract is speculative 
as opposed to a hedging or economic use?
  Mrs. LINCOLN. That is our intent. The Commission needs the power to, 
and should, prevent derivatives contracts that are contrary to the 

[[Page S5907]]

interest because they exist predominantly to enable gambling through 
supposed ``event contracts.'' It would be quite easy to construct an 
``event contract'' around sporting events such as the Super Bowl, the 
Kentucky Derby, and Masters Golf Tournament. These types of contracts 
would not serve any real commercial purpose. Rather, they would be used 
solely for gambling.
  Mrs. FEINSTEIN. And does the Senator agree that this provision will 
also empower the Commission to prevent trading in contracts that may 
serve a limited commercial function but threaten the public good by 
allowing some to profit from events that threaten our national 
  Mrs. LINCOLN. I do. National security threats, such as a terrorist 
attack, war, or hijacking pose a real commercial risk to many 
businesses in America, but a futures contract that allowed people to 
hedge that risk would also involve betting on the likelihood of events 
that threaten our national security. That would be contrary to the 
public interest.
  Mrs. FEINSTEIN. I thank the Senator for including this provision. No 
one should profit by speculating on the likelihood of a terrorist 
attack. Firms facing financial risk posed by threats to our national 
security may take out insurance, but they should not buy a derivative. 
A futures market is for hedging. It is not an insurance market.

                       collateralized investments

  Mrs. HAGAN. Mr. President, I would like to engage Senator Lincoln, 
chairman of the Agriculture, Nutrition and Forestry Committee, in a 
  Title VII of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, which Chairman Lincoln was the primary architect of, 
creates a new regulatory framework for the over-the-counter derivatives 
market. It will require a significant portion of derivatives trades to 
be cleared through a centralized clearinghouse and traded on an 
exchange, and it will also increase reporting and capital and margin 
requirements on significant players in the market. The new regulatory 
framework will help improve transparency and disclosure within the 
derivatives market for the benefit of all investors.
  Under the bill, the Commodity Futures Trading Commission, CFTC, and 
the Securities and Exchange Commission, SEC, are instructed to further 
define the terms ``major swap participant'' and ``major security-based 
swap participant.'' The definitions of major swap participant and major 
security-based swap participant included in the bill require the CFTC 
and the SEC to determine whether a person dealing in swaps maintains a 
``substantial position'' in swaps, as well as whether such outstanding 
swaps create ``substantial counterparty exposure'' that could have 
``serious adverse effects on the financial stability of the United 
States banking system or financial markets.'' The definition also 
encompasses ``financial entities'' that are highly leveraged relative 
to the amount of capital it holds, are not already subject to capital 
requirements set by a Federal banking regulator, and maintain a 
substantial position in outstanding swaps.
  I understand when the CFTC and SEC are making the determination as to 
whether a person dealing in swaps is a major swap participant or major 
security-based swap participant, it is the intent of the conference 
committee that both the CFTC and the SEC focus on risk factors that 
contributed to the recent financial crisis, such as excessive leverage, 
under-collateralization of swap positions, and a lack of information 
about the aggregate size of positions. Is this correct?
  Mrs. LINCOLN. Yes. My good friend from North Carolina is correct. We 
made some important changes during the conference with respect to the 
``major swap participant'' and ``major security-based swap 
participant'' definitions. When determining whether a person has a 
``substantial position,'' the CFTC and the SEC should consider the 
person's relative position in cleared versus the uncleared swaps and 
may take into account the value and quality of the collateral held 
against counterparty exposures. The committee wanted to make it clear 
that the regulators should distinguish between cleared and uncleared 
swap positions when defining what a ``substantial position'' would be. 
Similarly where a person has uncleared swaps, the regulators should 
consider the value and quality of such collateral when defining 
``substantial position.'' Bilateral collateralization and proper 
segregation substantially reduces the potential for adverse effects on 
the stability of the market. Entities that are not excessively 
leveraged and have taken the necessary steps to segregate and fully 
collateralize swap positions on a bilateral basis with their 
counterparties should be viewed differently.
  In addition, it may be appropriate for the CFTC and the SEC to 
consider the nature and current regulation of the entity when 
designating an entity a major swap participant or a major security-
based swap participant. For instance, entities such as registered 
investment companies and employee benefit plans are already subject to 
extensive regulation relating to their usage of swaps under other 
titles of the U.S. Code. They typically post collateral, are not overly 
leveraged, and may not pose the same types of risks as unregulated 
major swap participants.
  Mrs. HAGAN. I thank the Senator. If I may, I have one additional 
question. When considering whether an entity maintains a substantial 
position in swaps, should the CFTC and the SEC look at the aggregate 
positions of funds managed by asset managers or at the individual fund 
  Mrs. LINCOLN. As a general rule, the CFTC and the SEC should look at 
each entity on an individual basis when determining its status as a 
major swap participant.

                         Swap Dealer Provisions

  Ms. COLLINS. Mr. President, I rise today as a supporter of the Wall 
Street Transparency and Accountability Act, but also as one who has 
concerns over how the derivatives title of the bill will be 
implemented. I applaud the chairman of the Senate Banking Committee for 
his work on the underlying bill. At the same time, I am concerned that 
some of the provisions in the derivatives title will harm U.S. 
businesses unnecessarily.
  I would like to engage the chairman of the Senate Banking Committee 
in a colloquy that addresses an important issue. The Wall Street 
Transparency and Accountability Act will regulate ``swap dealers'' for 
the first time by subjecting them to new clearing, capital and margin 
requirements. ``Swap dealers'' are banks and other financial 
institutions that hold themselves out to the derivatives market and are 
known as dealers or market makers in swaps. The definition of a swap 
dealer in the bill includes an entity that ``regularly enters into 
swaps with counterparties as an ordinary course of business for its own 
account.'' It is possible the definition could be read broadly and 
include end users that execute swaps through an affiliate. I want to 
make clear that it is not Congress' intention to capture as swap 
dealers end users that primarily enter into swaps to manage their 
business risks, including risks among affiliates.
  I would ask the distinguished chairman whether he agrees that end 
users that execute swaps through an affiliate should not be deemed to 
be ``swap dealers'' under the bill just because they hedge their risks 
through affiliates.
  Mr. DODD. I do agree and thank my colleague for raising another 
important point of clarification. I believe the bill is clear that an 
end user does not become a swap dealer by virtue of using an affiliate 
to hedge its own commercial risk. Senator Collins has been a champion 
for end users and it is a pleasure working with her.
  Mr. McCAIN. Mr. President, we are poised to pass what some have 
termed a ``sweeping overhaul'' of our Nation's financial regulatory 
system. Unfortunately, this legislation does little, if anything--to 
tackle the tough problems facing the financial sector, nor does it 
institute real, meaningful and comprehensive reform. This bill is 
simply an abysmal failure and serves as yet another example of 
Congress's inability to make the choices necessary to bring our country 
back into economic prosperity.
  What this bill does represent is a guarantee of future bailouts. In a 
recent Wall Street Journal op-ed titled ``The Dodd-Frank Financial 
Fiasco,'' John Taylor--a professor of economics at Stanford and a 
senior fellow at the Hoover Institution--wrote:

       The sheer complexity of the 2,319-page Dodd-Frank financial 
     reform bill is certainly

[[Page S5908]]

     a threat to future economic growth. But if you sift through 
     the many sections and subsections, you find much more than 
     complexity to worry about.
       The main problem with the bill is that it is based on a 
     misdiagnosis of the causes of the financial crisis, which is 
     not surprising since the bill was rolled out before the 
     congressionally mandated Financial Crisis Inquiry Commission 
     finished its diagnosis.
       The biggest misdiagnosis is the presumption that the 
     government did not have enough power to avoid the crisis. But 
     the Federal Reserve had the power to avoid the monetary 
     excesses that accelerated the housing boom that went bust in 
     2007. The New York Fed had the power to stop Citigroup's 
     questionable lending and trading decisions and, with hundreds 
     of regulators on the premises of such large banks, should 
     have had the information to do so. The Securities and 
     Exchange Commission (SEC) could have insisted on reasonable 
     liquidity rules to prevent investment banks from relying so 
     much on short-term borrowing through repurchase agreements to 
     fund long-term investments. And the Treasury working with the 
     Fed had the power to intervene with troubled financial firms, 
     and in fact used this power in a highly discretionary way to 
     create an on-again off-again bailout policy that spooked the 
     markets and led to the panic in the fall of 2008.
       But instead of trying to make implementation of existing 
     government regulations more effective, the bill vastly 
     increases the power of government in ways that are unrelated 
     to the recent crisis and may even encourage future crises.

  Mr. Taylor then goes on to highlight the many ``false remedies'' 
contained in this legislation including the ``orderly liquidation'' 
authority given to the FDIC--which effectively institutionalizes the 
bailout process. Other examples are the new Bureau of Consumer 
Financial Protection, the new Office of Financial Research, and a new 
regulation for nonfinancial firms that use financial instruments to 
reduce risks of interest-rate or exchange-rate volatility.
  In addition to the ``false remedies,'' the huge expansion of 
government, and the outright power-grab by the Federal Government 
contained in this so-called reform measure--recent press reports note 
that this bill has also become the vehicle for imposing racial and 
gender quotas on the financial industry. Section 342 of this bill 
establishes Offices of Minority and Women Inclusion in at least 20 
Federal financial services agencies. These offices will be tasked with 
implementing ``standards and procedures to ensure, to the maximum 
extent possible, the fair inclusion and utilization of minorities, 
women, and minority-owned and women-owned businesses in all business 
and activities of the agency at all levels, including in procurement, 
insurance, and all types of contracts.''
  This ``fair inclusion'' policy will apply to ``financial 
institutions, investment banking firms, mortgage banking firms, asset 
management firms, brokers, dealers, financial services entities, 
underwriters, accountants, investment consultants and providers of 
legal services.''
  The provision goes on to assert that the government will terminate 
contracts with institutions they deem have ``failed to make a good 
faith effort to include minorities and women in their workforce.''
  Diana Furchtgott-Roth, former chief economist at the U.S. Department 
of Labor and senior fellow at the Hudson Institute, spotlighted the 
controversial section in an article on Real Clear Markets on July 8th. 
She wrote:

       This is a radical shift in employment legislation. The law 
     effectively changes the standard by which institutions are 
     evaluated from anti-discrimination regulations to quotas. In 
     order to be in compliance with the law these businesses will 
     have to show that they have a certain percentage of women and 
     a certain percentage of minorities.

  This provision was never considered or debated in the Senate. I do 
not think it is unreasonable to expect that such a major change in 
government policy--indeed a complete shift from anti-discrimination 
regulations to a system of quotas for the financial industry--be fully 
aired and debated by both Chambers before it is enacted.
  Finally, let me return to Mr. Taylor's piece from the Wall Street 
Journal. Mr. Taylor added:

       By far the most significant error of omission in the bill 
     is the failure to reform Fannie Mae and Freddie Mac, the 
     government sponsored enterprises that encouraged the 
     origination of risky mortgages in the first place by 
     purchasing them with the support of many in Congress. Some 
     excuse this omission by saying that it can be handled later. 
     But the purpose of ``comprehensive reform'' is to balance 
     competing political interests and reach compromise; that will 
     be much harder to do if the Frank-Dodd bill becomes law.

  I could not agree more. It is clear to any rational observer that the 
housing market has been the catalyst of our current economic turmoil. 
And it is impossible to ignore the significant role played by Fannie 
Mae and Freddie Mac. The events of the past 2 years have made it clear 
that never again can we allow the taxpayer to be responsible for poorly 
managed financial entities who gambled away billions of dollars. Fannie 
Mae and Freddie Mac are synonymous with mismanagement and waste and 
have become the face of ``too big to fail.''
  During the debate on this financial ``reform'' bill, we heard much 
about how the U.S. Government will never again allow a financial 
institution to become ``too big to fail.'' We heard countless calls for 
more regulation to ensure that taxpayers are never again placed at such 
tremendous risk. Sadly, the conference report before us now completely 
ignores the elephant in the room--because no other entity's failure 
would be as disastrous to our economy as Fannie Mae's and Freddie 
  As my colleagues know, during Senate consideration of this bill, I 
offered a good, common-sense amendment designed to end the taxpayer-
backed conservatorship of Fannie Mae and Freddie Mac by putting in 
place an orderly transition period and eventually requiring them to 
operate--without government subsidies--on a level playing field with 
their private sector competitors. Unfortunately that amendment was 
defeated by a near-party-line vote.
  The majority, however, did offer an alternative proposal to my 
amendment. Was it a good, well thought out, comprehensive plan to end 
the taxpayer-backed free ride of Fannie and Freddie and require them to 
operate on a level playing field with their private sector competitors? 
Nope. It was a study. The majority included language in this bill to 
study the problem of Fannie and Freddie for 6 months. Wow! Instead of 
dealing head-on with the two enterprises that brought our entire 
economy to its knees--the majority wants to study them for 6 more 
  According to a recent article published by the Associated Press, 
these two entities have already cost taxpayers over $145 billion in 
bailouts and--according to CBO--those losses could balloon to $400 
billion. And if housing prices fall further, some experts caution, the 
cost to the taxpayer could hit as much as $1 trillion. And all the 
majority is willing to do is study them for 6 months. It is no wonder 
the American people view us with such contempt.
  The Federal Government has set a dangerous precedent here. We sent 
the wrong message to the financial industry: when you engage in bad, 
risky business practices, and you get into trouble, the government will 
be there to save your hide. It amounts to nothing more than a taxpayer-
funded subsidy for risky behavior and this bill does nothing to prevent 
it from happening all over again.
  Again, I regret that I have to vote against this bill. I assure my 
colleagues, and the American people, that if this were truly a bill 
that instituted real, serious and effective reforms--I would be the 
first in line to cast a vote in its favor. But it is not. It serves as 
evidence of a dereliction of our duty and a missed opportunity to 
provide the American people with the protections necessary to avert yet 
another financial disaster. They deserve better from us.
  Mr. GRASSLEY. Mr. President, I have long worked for the continued 
viability of rural low-volume hospitals so that Medicare beneficiaries 
living in rural areas in Iowa and elsewhere in the country will 
continue to have needed access to care.
  Today, I want to discuss another concern, one regarding low-volume 
dialysis clinics in rural areas and the kidney dialysis patients they 
  Congress enacted a new end-stage renal dialysis, ESRD, bundled 
payment system in the Medicare Improvements for Patients and Providers 
Act of 2008 that takes effect next year.
  I support the establishment of a fully bundled payment system for 
renal dialysis services.
  It is intended to improve payments for ESRD services and to ensure 

[[Page S5909]]

to critical renal dialysis services, including those in rural areas.
  It will also improve the quality of care for dialysis patients by 
requiring ESRD providers to meet certain standards through a new 
quality incentive program that is established for ESRD providers.
  It establishes a permanent annual update for ESRD providers.
  It also provides for payment adjustments in certain circumstances, 
such as payments for low-volume facilities and for dialysis facilities 
and providers in rural areas that need additional resources.
  Last fall, the Centers for Medicare and Medicaid Services, CMS, 
issued a proposed rule to implement the new ESRD bundled payment 
system. That rule will be finalized later this year.
  I am concerned that overall some of the proposed adjustments that 
reduce payments for dialysis treatment may be unduly low.
  But today I want to focus on one issue in particular--the adjustment 
that CMS has proposed for low-volume facilities.
  The legislation that established this new bundled payment system 
specifically requires CMS to adopt a payment adjustment of not less 
than 10 percent for low-volume facilities to ensure their continued 
viability with other facilities.
  The Secretary was given the discretion to define low-volume 
  Unfortunately, CMS has proposed a very restrictive definition and set 
of criteria to qualify as a low-volume facility so the payment 
adjustment would only apply to facilities that furnish fewer than 3,000 
treatments a year.
  According to CMS, ``the low-volume adjustment should encourage small 
ESRD facilities to continue to provide access to care to an ESRD 
patient population where providing that care would otherwise be 
  CMS also notes that low-volume facilities have substantially higher 
treatment costs.
  Previously, CMS considered an ESRD facility with less than 5,000 
treatments a year to be small.
  But now CMS is proposing to limit eligible ESRD facilities to those 
with less than 3,000 treatments a year and requiring this limit to be 
met for 3 years preceding the payment year, along with certain 
ownership restrictions.
  CMS has not proposed any geographic restriction that would limit the 
low-volume payment adjustment to dialysis facilities in rural areas.
  Medicare reimbursement is already problematic for small dialysis 
organizations because they operate on very low Medicare margins.
  According to the March 2010 report of the Medicare Payment Advisory 
Commission, MedPAC, large dialysis organizations have Medicare margins 
of 4.0 percent compared to other dialysis facilities with Medicare 
margins of only 1.6 percent.
  MedPAC also found that rural dialysis providers have Medicare margins 
that average -0.3 percent compared to urban providers with positive 
margins of 3.9 percent, and they expressed concern that the gap in 
rural and urban margins has widened.
  They project that Medicare margins will fall from an aggregate 3.2 
percent margin in 2008 to an aggregate 2.5 percent in 2010.
  If corresponding declines are seen in rural areas, negative margins 
for rural facilities will increase, and low-volume rural facilities 
will be hit even harder.
  And this projection does not take into account any of the additional 
reductions that CMS has proposed as part of the new bundled payment 
system even though these reductions would have a significant adverse 
impact on small dialysis facilities.
  Should the proposed restrictions on low-volume facilities be 
finalized, the continued viability of these small dialysis facilities 
will be questionable.
  This will be especially true in rural areas, and beneficiary access 
to these critical dialysis services will be severely jeopardized.
  Small rural dialysis clinics provide beneficiaries with end-stage-
renal disease access to critically-needed dialysis services in 
medically underserved areas.
  In some rural areas, a single clinic may be the only facility that 
furnishes this life-sustaining care.
  Should the unduly restrictive treatment limit for low-volume 
facilities be finalized as proposed, small rural facilities with 
slightly higher treatment volumes will lose these essential low-volume 
  Since rural dialysis facilities already face negative Medicare 
margins, many are likely to close, further limiting access to crucial 
dialysis services that these kidney patients depend upon to survive.
  New facilities would not be eligible for low-volume payments until 
their fourth year of operation under the proposed rule, making it 
unlikely that other facilities would take the place of those that had 
  The prospect of Medicare beneficiaries' losing access to these life-
sustaining services is simply unacceptable.
  I, therefore, urge CMS to modify the proposed restrictions for low-
volume adjustments by raising the treatment limit to the existing 5,000 
treatment definition for small rural dialysis facilities.
  One of my constituents, Laura Beyer, RN, BSN, is the manager of 
dialysis at Pella Regional Health Center, a critical access hospital in 
rural Iowa. She has written an editorial about this problem and the 
financial crises that small outpatient dialysis facilities, such as 
Pella Regional Health Center, are facing. Her editorial will be 
appearing in Nephrology News in July.
  I ask unanimous consent to have printed in the Record this editorial.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

   Will the New ESRD Bundle Cause the Death of Rural Hospital-Based 
                            Dialysis Units?

       The new End Stage Renal Disease (ESRD) Bundled payment 
     system scheduled to begin in January, 2011 is expected to 
     create a financial loss for dialysis clinics across the 
     United States. According to the CMS Office of Public Affairs 
     (2009) ``MIPPA [Medicare Improvements for Patients and 
     Providers Act] specifically requires that the new system trim 
     two percent of the estimated payments that would have been 
     made in 2011 under the previous payment system'' (para.3). 
     Although this is of concern to all dialysis clinics, it is 
     particularly alarming to non-profit hospital based dialysis 
     units which are already operating at a loss.
       These small hospital-owned dialysis clinics are simply 
     trying to provide a service to an underserved rural area. 
     Patients would have no option but to let ESRD claim their 
     lives because the resources are not available for them to 
     drive the extended distances to urban areas where dialysis 
     services are more available. Pella Regional Health Center 
     (PRHC), a Critical Access Hospital (CAH) in rural Iowa, 
     offers outpatient dialysis services. Robert Kroese, CEO of 
     PRHC stated, ``We choose to keep this dialysis clinic open 
     despite the financial liability to the hospital for one 
     reason only, people will have no choice but to die without 
     it. Our community needs this service.''
       Currently hospital-based dialysis units represent 13.6 
     percent of all dialysis facilities in the United States. 
     Facilities classified as rural only make up 4.4 percent. The 
     current CMS payment system defines a small facility as <5000 
     treatments annually as well as other control variables to 
     include urban vs. rural and facility ownership. The proposed 
     bundled payment system will decrease reimbursement further 
     for these rural hospital-based units by decreasing the low-
     volume definition to <3000 treatments per year and 
     eliminating rural facility payment adjustments (Leavitt, 
     2008). Considering the lack of buying power these small 
     facilities face compared to the large dialysis companies, the 
     hope of continuing this service in these rural areas is 
       At what point is the financial burden going to be too much 
     for these small rural hospitals to carry? The result will be 
     thousands of patients without the healthcare services needed 
     to sustain their lives. Please consider the effects on the 
     unseen heroes in rural America trying to provide the best 
     care possible to all Americans who need it. Help protect the 
     dialysis patients who live in the underserved areas of 
     America by contacting your state representatives regarding 
     the preservation of Hospital-based rural dialysis units.

  Mr. FEINGOLD. Mr. President, I will oppose the conference version of 
the Dodd-Frank bill. While it includes some positive provisions, it 
fails its most important mission, namely to ensure that taxpayers, 
consumers, businesses, and workers won't be victims of another 
financial crisis like the one which a few years ago triggered the worst 
recession our Nation has experienced since the Great Depression.
  The measure certainly contains many good things, but those positive 
provisions do not outweigh the bill's serious failings. Of the several 
significant flaws in the bill, I will focus on two--the failure to 
reinstate the well-

[[Page S5910]]

proven protections first established by the Glass-Steagall Act of 1933 
that were repealed a decade ago, and the failure to firmly and finally 
address the essential problem posed by too-big-to-fail financial 
  Earlier this year I was pleased to cosponsor a bill introduced by the 
Senator from Washington, Ms. Cantwell, to restore the safeguards that 
were enacted as part of the famous Glass-Steagall Act of 1933. And I 
was also pleased to cosponsor her amendment to the Financial Regulatory 
Reform bill, which was based on that legislation. It went to the very 
core of what the underlying bill we are considering seeks to address.
  Unlike some other proposals we considered, that amendment had a track 
record we can review, because the economic history of this country can 
be divided into three eras--the time before Glass-Steagall, the Glass-
Steagall era, and the most recent post-Glass-Steagall era.
  In the first era--the time before the enactment of the Glass-Steagall 
Act of 1933--financial panics were frequent and devastating. Even 
before the market crash in 1929, the panics of 1857, 1873, 1893, 1901, 
and 1907 wrecked our economy, putting thousands of firms out of 
business, and leaving family breadwinners across the country without 
  In the wake of the 1929 crash--the last great panic of that first 
era--4,000 commercial banks and 1,700 savings and loans failed in this 
country, triggering the Great Depression that eliminated jobs for a 
quarter of the workforce.
  It was that last financial crisis that spurred enactment of the 
Glass-Steagall Act of 1933, which marks the beginning of the second of 
our financial history's three eras.
  The Glass-Steagall Act of 1933 put a stop to financial panics. It 
stabilized our banking system by implementing two key reforms. First, 
it established an insurance system for deposits, reassuring bank 
customers that their deposits were safe and thus forestalling bank 
runs. And second, it erected a firewall between securities underwriting 
and commercial banking. Financial firms had to choose which business to 
be in; they couldn't do both.
  That wall between Main Street commercial banking and Wall Street 
investment financing was a crucial part of establishing the deposit 
insurance safety net because it prevented banks that accepted FDIC-
insured deposits from making speculative investment bets with that 
insured money.
  The Glass-Steagall Act was an enormous success. It helped prevent any 
major financial crisis in this country for most of the 20th century, 
and that financial market stability helped foster the economic growth 
we enjoyed for decades.
  And that brings us to the last of the three eras--the post-Glass-
Steagall era.
  All that wonderful financial market stability that we had enjoyed for 
decades began to unravel when, in the 1980s, Wall Street lobbyists 
spurred regulators to undermine financial regulations, including the 
very firewall between Main Street banking and Wall Street investing 
that Glass-Steagall had established, and that had worked so well. That 
firewall was completely torn down when Wall Street lobbyists convinced 
Congress to pass the Gramm-Leach-Bliley Act of 1999.
  We have seen the disastrous results of that ill-considered policy. 
It's a major part of the reason the financial regulatory reform bill 
was considered by this body.
  I voted against the Gramm-Leach-Bliley Act, which eliminated the 
Glass-Steagall protections. The financial and economic record of that 
bill has been disastrous. If the financial regulatory reform bill 
before us did nothing else, it should have fixed the problems created 
by that ill-advised act.
  Just a few weeks ago, at one of the listening sessions I hold in each 
of Wisconsin's 72 counties every year, a community banker from 
northwestern Wisconsin urged me to support restoring the Glass-Steagall 
protections. He rightly pointed out how the lack of those protections 
led directly to the Great Depression. And he argued that the bill we 
are currently debating doesn't go far enough in this respect. That 
community banker was absolutely right.
  The bill before us tries to make up for the lack of a Glass-Steagall 
firewall by establishing some new limitations on the activities of 
banks, and gives greater power and responsibility to regulators. All of 
that is well intentioned, but we all know just how creative financial 
firms can be at eluding these kinds of limits and regulatory oversight 
when so much profit is at stake. No amount of oversight is an effective 
substitute for the legal firewall established by Glass-Steagall.
  The era in our financial history in which the Glass-Steagall 
protections were in force was notable for the lack of instability and 
turmoil that had been a regular feature of our financial markets prior 
to Glass-Steagall, and that helped bring our economy to the brink after 
Glass-Steagall safeguards were repealed. Congress should have restored 
those time-tested protections, and reestablished the stability that 
brought our Nation half a century of remarkable economic growth.
  We could have achieved that by adopting the Cantwell amendment. But, 
as we know, the Cantwell amendment was not even permitted a vote, such 
was the opposition to that commonsense reform by those who were guiding 
this legislation. So our financial markets will continue to remain 
adrift in the brief but ruinous post-Glass-Steagall era.
  The other flaw I will highlight is the measure's failure to directly 
address what in many ways is the reason we are here today, namely the 
problem of too big to fail.
  During the Senate's consideration of the measure, several amendments 
were offered that sought to confront that problem. Two of them, one 
offered by the Senator from North Dakota, Mr. Dorgan, and one offered 
by the Senators from Ohio, Mr. Brown, and Delaware, Mr. Kaufman, took 
the problem on directly. Only one of those amendments even got a vote, 
and that proposal, from Senators Brown and Kaufman, was strongly 
opposed, and ultimately defeated, by those who were shepherding the 
bill through the Senate.
  As I noted, the problem of too big to fail is the reason we are 
considering financial regulatory reform legislation. It was the threat 
of the failure of the Nation's largest financial institutions that 
spurred the Wall Street bailout. I opposed that measure as well, in 
part because it was not tied to fundamental reforms of our financial 
system that would prevent a future crisis and the need for another 
bailout. There can be no doubt that we could have had a much tougher 
reform package if the bailout had been tied to such a measure.
  Nor should there be any doubt about the role Congress has played in 
aggravating the problem of too big to fail. Fifteen years ago, the six 
largest U.S. banks had assets equal to 17 percent of our GDP. Today, 
after the enactment of the Riegle-Neal Interstate Banking and Branching 
bill and the Gramm-Leach-Bliley bill, the six largest U.S. banks have 
assets equal to more than 60 percent of our GDP.
  Years ago, a former Senator from Wisconsin, William Proxmire, noted 
that as banking assets become more concentrated, the banking system 
itself becomes less stable, as there is greater potential for system 
wide failures. Sadly, Senator Proxmire was absolutely right, as recent 
events have proved. Even beyond the issue of systemic stability, the 
trend toward further concentration of economic power and economic 
decisionmaking, especially in the financial sector, simply is not 
healthy for the Nation's economy.
  Historically, banks have had a very special role in our free market 
system: They are rationers of capital. While in recent decades we have 
seen changes in the capital markets that provide the largest 
corporations with other options to access needed capital, small 
businesses still remain dependent on the traditional banking system for 
the capital that is essential to them. So when fewer and fewer banks 
are making the critical decisions about where capital is allocated, 
there is an increased risk that many worthy enterprises will not 
receive the capital needed to grow and flourish.
  For years, a strength of the American banking system was the strong 
community and local nature of that system. Locally made decisions made 
by locally owned financial institutions--institutions whose economic 
prospects were tied to the financial

[[Page S5911]]

health of the communities they served--have long played a critical role 
in the economic development of our Nation and especially for our 
smaller communities and rural areas. But we have moved away from that 
system. Directly as a result of policy changes made by Congress and 
regulators, banking assets are controlled by fewer and fewer 
institutions, and the diminishment of that locally owned and controlled 
capital has not benefited either businesses or consumers.
  Beyond the problems to our capital markets created by this 
development, there is Senator Proxmire's warning about the increased 
risk of system wide failure. Taxpayers across the country must now 
realize that Senator Proxmire's warning about the concentration of 
banking assets proved to be all too prescient when President Bush and 
Congress decided to bail out those mammoth financial institutions 
rather than allowing them to fail.
  Some may argue that instead of imposing clear limits on the size of 
these financial behemoths, the bill before us seeks to limit their risk 
of failing by tightening the rules that should govern their behavior. 
And, they might add, the measure also permits regulators to address 
these matters more directly than ever before. But we have seen how Wall 
Street interests can maneuver around inconvenient regulations. 
Moreover, the track record of the regulators themselves has been 
troubling at best, and yet this bill relies on that same system to 
protect taxpayers and the economy from another financial market 
  Today, the 10 largest banks have more than $10 trillion in assets. 
That is the equivalent of more than three-quarters of our Nation's GDP. 
And no one believes that, if one or more of those financial 
institutions were to get into trouble, they would be allowed to simply 
fail. The risk to the financial markets and the economy is seen as too 
great. They are literally too big to fail. And that is the problem.
  As economist Dean Baker has noted, too big to fail implies two 
things: First, knowing the government will stand behind the debt-of-
too-big to fail institutions, creditors will view those institutions as 
better credit risks and lower the cost of credit to them; and second, 
too-big-to-fail firms are able to engage in riskier behavior than other 
firms because creditors know the government will stand behind a too-
big-to-fail firm if it gets in trouble, they will keep the money 
flowing when they otherwise might have closed it off. Baker is exactly 
right when he says that this is a recipe for many more bailouts.
  Too big to fail has been a growing problem for more than a decade. 
Yet nothing in the Dodd-Frank bill requires that those enormous 
financial firms be whittled down to a size that would permit them to 
fail without disastrous consequences for financial markets or the 
economy. In fact, as Peter Eavis noted in the Wall Street Journal, the 
bill actually ``enshrines the bailout architecture, and thus the `too-
big-to-fail' distortions in the economy.'' And those distortions are 
not limited to the kind of massive, systemic collapse of the financial 
markets, which we just experienced. Too-big-to-fail distortions occur 
daily. They happen whenever a smaller community bank is competing with 
an enormous too-big-to-fail bank. Dean Baker calculated that the credit 
advantage the very biggest banks have over smaller institutions because 
of too-big-to-fail distortions is worth possibly $34 billion a year. 
Those who doubt such a distortion need only talk to a community banker 
for a few minutes to understand just how real it is.
  Some suggest we should pass this bill because, despite the failings I 
have just described, it contains some positive reforms and that we 
should enact those improvements and then work to achieve the critically 
needed reforms that remain. That analysis assumes there will be some 
second great reform effort which will build on the work begun in this 
legislation, and that simply isn't going to happen. This is the bill. 
In the wake of the financial crisis and bailout, Congress essentially 
gets one shot to correct things and prevent a future crisis and 
bailout. There will be no financial regulatory reform, part two. Nobody 
seriously thinks the White House is planning a second reform package to 
go after too big to fail and to reinstate Glass-Steagall protections. 
Nor does anyone believe the Senate Banking Committee or the House 
Banking Committee is drafting a followup bill to deal with those 
issues. For that matter, I know of no advocacy groups that are 
seriously planning a followup reform effort to go after too big to fail 
or to reinstate the Glass-Steagall firewalls between commercial banking 
and Wall Street investment firms. It is not happening, because this is 
the moment and this is bill. To minimize the failings of this bill by 
suggesting there will be another one coming down the pike is at best 
misleading and at worst dishonest.
  Mr. President, in this case, we have to get it right--completely 
right, not just make a good start. This bill fails the key test of 
preventing another crisis, and I will oppose it.
  Mr. BROWNBACK. Mr. President, I rise to speak regarding the auto 
dealer exclusion in section 1029 of H.R. 4173, the Restoring American 
Financial Stability Act of 2010.
  I am pleased that my amendment excluding auto dealers from the 
jurisdiction of the Bureau of Consumer Financial Protection, CFPB, was 
included in the conference report to H.R. 4173. This proposal attracted 
bipartisan support because the auto dealers should not have been 
regulated in this bill in the first place. They are retailers. They 
should not be regulated as bankers. They did not cause the Wall Street 
meltdown. They didn't bring down Lehman Brothers or Bear Stearns.
  The purpose of my amendment was to protect third party auto 
financing. The CFPB could have abolished that kind of financing, but 
keeping these provisions in the bill will preserve a variety of auto 
financing choices for consumers, and we know that more choices result 
in lower prices. And the provisions of my amendment keep auto loans 
convenient and affordable while retaining existing consumer protection 
laws and policies.
  The end result is a balance between consumer protection and the 
availability of affordable and accessible credit for consumers to meet 
their transportation needs. Except for subsection (d), Section 1029 is 
the result of a lot of debate and discussion in both houses of Congress 
dating back to last year. During the House Financial Services 
Committee's markup of this legislation, Representative John Campbell of 
California offered an amendment to exclude auto dealers from the 
jurisdiction of the CFPB. The Campbell amendment passed on a bipartisan 
vote of 47-21. A modified form of the Campbell amendment was included 
during floor consideration of H.R. 4173, which passed by a vote of 223-
202 on December 11, 2009.
  I offered an amendment during Senate consideration of H.R. 4173 to 
serve as a companion to the Campbell amendment. Although my amendment 
did not receive a direct vote, on May 24, the Senate voted to instruct 
its conferees to recede to the House on this matter, subject to the 
modifications of the Brownback amendment. This motion passed on a 
bipartisan vote of 60-30.
  The final conference committee agreement incorporates the Brownback-
Campbell language with some modifications. I want to discuss those 
provisions specifically and highlight some significant points.
  First, section 1029(a) provides that the CFPB ``may not exercise any 
rulemaking, supervisory, enforcement or any other authority, including 
any authority to order assessments, over a motor vehicle dealer that is 
predominately engaged in the sale and servicing of motor vehicle, the 
leasing and servicing of motor vehicles, or both.'' This is a clear, 
unambiguous exclusion from the authority of the CFPB for motor vehicle 
  Three exceptions to the exclusion for dealers are enumerated in 
section 1029(b). Subsection (b)(1) describes activity related to real 
estate transactions with consumers. Subsection (b)(2) describes motor 
vehicle transactions in which the dealer underwrites, funds, and 
services motor vehicle retail installment sales contracts and lease 
agreements without the involvement of an unaffiliated third party 
finance or leasing source so-called ``buy-here-pay-here'' transactions. 
Subsection (b)(3) describes the consumer financial products and 
services offered by motor vehicle dealers and limits the exclusion to 
those activities or any related or ancillary product or service. The 
combination of

[[Page S5912]]

1029(a) and 1029(b) ensures that motor vehicle dealers providing 
financial products or services related to the activities described in 
subsection (b)(3) are completely excluded from the CFPB.
  Section 1029(c) preserves the authority of the Federal Reserve Board, 
the Federal Trade Commission and any other Federal agency having 
authority to regulate motor vehicle dealers.
  Section 1029(d) provides that the Federal Trade Commission, FTC, will 
have the authority to write rules to address unfair or deceptive acts 
or practices by motor vehicle dealers pursuant to the procedures set 
forth in the Administrative Procedures Act instead of the Magnuson-Moss 
Act. Motor vehicles dealers are set to become the only businesses in 
America singled out for regulation in this manner. I want to emphasize 
that this specific provision was neither in the House or Senate bill 
and was not under consideration in either chamber. It was added by 
House-Senate conferees. Section 1029(d) was included without any 
evidence to justify its inclusion, or any debate for that matter. I do 
not support this provision, as I believe it invites the FTC to again 
engage in regulatory overreach. I am concerned that the removal of the 
well-established ``Magnuson-Moss'' safeguards gives the FTC free rein 
to conduct fishing expeditions into any area of automotive finance it 
perceives as ``unfair.''
  The present leadership of the FTC has promised that if Magnuson-Moss 
were repealed, they would use their new power prudently. I hope that 
this is the case, because we do not want to repeat the kind of 
excessive FTC regulation that occurred in the 1970s. For that reason, 
Congress must monitor the FTC very closely to ensure the vast power 
Congress will now bestow on this agency is not once again abused.
  Section 1029(e) requires the Federal Reserve Board and the Federal 
Trade Commission to coordinate with the Office of Service Member 
Affairs to ensure that any complaints raised by men and women in the 
armed services are addressed effectively by the appropriate enforcement 
  Section 1029(f) defines certain terms in the bill. My amendment 
expanded the House language to also exclude similarly situated RV and 
boat dealers.
  The concept of excluding auto dealers from the jurisdiction of the 
CFPB gained bipartisan support, but there was some debate about its 
effect on members of the U.S. Armed Forces. Because we all share the 
utmost concern for our service men and women, I think it is appropriate 
to revisit that argument briefly and to reiterate my strong belief that 
this exclusion will not hurt members of the military.
  On February 26, Under Secretary of Defense Clifford Stanley wrote a 
widely distributed letter contending that excluding auto dealers from 
the CFPB would have a harmful effect on servicemembers. On May 14, I 
sent a letter to Under Secretary Stanley asking him to further clarify 
and substantiate the claims he made in his letter to ensure that the 
Senate would not take action that would harm military members.
  Under Secretary Stanley's May 18 response to my letter offered a 
series of anecdotes about finance practices that were already illegal. 
In addition, Under Secretary Stanley's letter related the results of a 
survey of military members regarding auto financing. That survey, which 
was informal and unscientific, unfortunately failed to specify the 
sources of the problems some servicemembers encountered. It gave no 
indication that auto dealers were responsible for bad loans made to 
military members and made, and I think it is unfortunate that auto 
dealers were blamed for problems they did not cause on the basis of 
this survey.
  In fact, I was surprised that Pentagon officials cited this survey 
instead of relying on their comprehensive 2006 report on abusive 
lending practices. This study, entitled ``Report on Predatory Lending 
Practices Directed at Members of the Armed Forces and Their 
Dependents'' did not include dealer-assisted financing among its list 
of predatory lending practices. In the end, in my view, the best 
information available indicates that servicemembers will not be harmed 
by exempting dealers from the jurisdiction of the CFPB. I am glad that 
argument carried the day.
  I am very concerned that the CFPB, which will not be overseen by the 
Office of Management and Budget and will not depend on Congress for its 
funding, will at some point in the future engage in regulatory 
overreach that will hurt our economy. Excluding auto, boat and RV 
dealers from the CFPB jurisdiction will ensure that these Main Street 
small businesses are protected from such harmful regulation. For 
consumers, my amendment guarantees that access to affordable credit is 
preserved, and all consumer protections laws are maintained. While I am 
very concerned about the implications of H.R. 4173 overall, I am 
pleased that at least in this instance we have found a way to limit the 
threat of regulations that hurt consumers and strangle our economy.
  Mr. LEAHY. Mr. President, I strongly support the Dodd-Frank Wall 
Street Reform and Consumer Protection Act of 2010.
  The American people often are cynical, with good reason, about the 
success that powerful corporate interests have in trumping the 
interests and rights of everyday Americans, on Wall Street, in Congress 
and even on our Supreme Court. Backed by multimillions of dollars that 
ordinary Americans cannot match, the lobbying pressure that was sharply 
focused on trying to shape this bill at every step, including the 
conference, was almost without parallel. Yet the bill that emerged from 
conference truly reflects the Nation's interests in real Wall Street 
reform. This is a great, unheralded victory for the American people and 
one that should serve as an example again and again.
  The recent financial crisis clearly exposed several flaws in our 
current regulatory system. Many large Wall Street investment banks and 
insurance companies hid their shaky finances from stockholders and 
government regulators. Corporate executives saw their salaries rise to 
extreme heights, even as their companies were failing and seeking 
government assistance. Through it all, Federal regulatory agencies 
failed to provide the necessary oversight to rein in these reckless 
actions. If this crisis has taught us anything, it is that the look-
the-other way, hands-off deregulatory policies that were in vogue in 
recent times can jeopardize not only private investments but our entire 
  The conference report we are voting on today goes directly to the 
heart of the Wall Street excesses that brought our economy to the 
brink. For far too long Wall Street firms made risky bets in the dark 
and reaped enormous profits. Then, when their bets went sour, they 
turned to America's taxpayers to bail them out. This bill is about 
changing the culture of rampant Wall Street speculation and doing what 
needs to be done to get our economy back on track. We need more 
transparency and oversight of Wall Street. These improvements will 
increase transparency in and oversight of the financial sector. These 
historic reforms will set clear standards and real enforcement--
including jail time for executives--to finally curb the fraud, 
manipulation, and riotous speculation that punctured confidence in our 
markets and derailed our economy.
  I commend Chairman Barney Frank and Chairman Chris Dodd for their 
excellent leadership of the conference. As a conferee, I know full well 
the pressure that powerful Wall Street special interests put on all 
Members to water down the bill, and I appreciate the difficulty the two 
chairmen have endured corralling the votes needed for final passage. 
Despite heavy and expensive lobbying from those who support the status 
quo, the conference committee put together a strong and balanced bill 
that will clean up Wall Street abuses, build confidence in our economy, 
and continue our progress toward economic recovery.
  This bill makes several significant improvements to our financial 
services regulations. Specifically, it will create a new systemic 
regulatory council to watch for broad economic bubbles and red flags; 
end taxpayer bailouts of Wall Street institutions by establishing a new 
resolution authority to wind down failing megafirms outside of 
bankruptcy; create a new Consumer Financial Protection Bureau to 
oversee financial products on the market and rein in subprime lending; 
set new capital and leverage limits for financial institutions; give 
the SEC and CFTC

[[Page S5913]]

new authorities and resources to protect investors; bring the massive 
derivatives market under Federal regulation for the first time; require 
hedge fund and other private investment advisers to register with the 
SEC; establish reasonable and fair swipe fees for debit and credit 
cards; and provide new resources for unemployed homeowners who are 
having trouble making their mortgage payments.
  As chairman of the Senate Judiciary Committee, I am particularly 
pleased that the conference report also includes provisions I authored, 
working with Senator Grassley, Senator Specter, and Senator Kaufman, to 
ensure law enforcement and Federal agencies have the necessary tools to 
investigate and prosecute financial crimes and to protect 
whistleblowers who help uncover these crimes. I am pleased that the 
conference report preserves meaningful antitrust oversight in the 
financial industry. I also am heartened that the conference agreement 
includes provisions I put forward to introduce true transparency into 
the complex operations of large financial institutions and the Federal 
agencies that regulate them. It has seemed to me that promoting 
transparency should be a vital element of Wall Street reform. 
Transparency is a cleansing agent for healthy markets. Open information 
helps investors make sound decisions. When information is murky, market 
decisions must be based on guesses or rumors that corrode trust and 
that encourage fraud and deception.
  Another major step forward is the derivatives section of the 
conference report, crafted by the Agriculture Committee on which I 
serve. I applaud our committee chair, Senator Blanche Lincoln, who 
fought tirelessly for these reforms. These changes will finally bring 
the $600 trillion derivatives market out of the dark and into the light 
of day, ending the days of backroom deals that put our entire economy 
at risk. The narrow end-user exemption in the bill will allow 
legitimate commercial interests, such as electric cooperatives and 
heating oil dealers on Main Street, to continue hedging their business 
risks, but it will stop Wall Street traders from artificially driving 
up prices of heating oil, gasoline, diesel fuel, and other commodities 
through unchecked speculation.
  The conference report also includes a provision by Senator Dick 
Durbin and Representative Peter Welch that I supported to protect our 
small businesses from complicated predatory rules that big credit card 
companies could otherwise impose on Vermont grocers and convenience 
stores. The Durbin-Welch amendment will ensure that a small business 
will be able to advertise a discount for paying cash or for using one 
card instead of another. I do not want Vermonters to pay more for a 
gallon of milk just because the credit card companies are demanding a 
high fee on small transactions and are not allowing the grocer to ask 
for cash instead of credit.
  Another amendment I offered that is included in the final agreement 
is of particular importance to small States such as Vermont. My 
amendment will guarantee that Vermont and other small States each 
receive at least $5 million of the $1 billion in new Neighborhood 
Stabilization Program funds in the bill. Originally created in 2008, 
this program is designed to stabilize communities that have suffered 
from foreclosures and abandonment. My amendment overrode language 
proposed by the House that expressly prohibited a small-State-minimum 
from being used to allocate funds.
  The extractive industries transparency disclosure provision that I 
sponsored is another major step forward for protecting U.S. taxpayers 
and shareholders and increasing the transparency of major financial 
transactions. This provision is about good governance and transparency 
so the American people and investors can know if they are investing in 
companies that are operating in dangerous or unstable parts of the 
world, thereby putting their investments at risk. This provision also 
will enable citizens of these resource-rich countries to know what 
their governments and governmental officials are receiving from foreign 
companies in exchange for mining rights. This will begin to hold 
governments accountable for how those funds are used and help ensure 
that the sale of their countries' natural resources are used for the 
public good.
  I am also pleased that the bill includes a provision I cosponsored 
with Senator Bernie Sanders to increase transparency on the bailout 
transactions made by the Federal Reserve. Under this bill, we will 
finally have an audit of all of the emergency actions taken by the 
Federal Reserve since the financial crisis began, to determine whether 
there were any conflicts of interest surrounding the Federal Reserve's 
emergency activities. It is time we know more about the closed-door 
decisions made by the Federal Reserve throughout this financial crisis.
  Mr. President, the Senate has before it today a conference report 
that will rein in Wall Street abuses, end government bailouts, and give 
everyday Americans the consumer protection they deserve and expect. It 
will help restore faith in our markets, which are part of the vital 
foundation of our economic progress. Taking this broom to Wall Street 
abuses will help build confidence in our economy and continue our 
progress toward economic recovery.
  Mr. REED. Mr. President, on June 29, 2010, the House-Senate 
conference committee completed its deliberations on the most 
significant financial regulatory legislation since the 1930s. And, now, 
this conference report is before the Senate for final enactment. It 
will fundamentally change how we protect consumers, families, and small 
business from the reckless and abusive practices of the financial 
sector, and it will provide a framework for economic growth without the 
peril of periodic taxpayer bailouts of the financial sector.
  The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 
is a significant achievement. The legislation before the Senate 
declares that big banks cannot continue to take enormous risk, reaping 
billions in profits and rewarding their executives with hefty bonuses 
while counting on taxpayers to bail them out when they get in trouble. 
Unregulated mortgage lenders will no longer be able to make loans they 
know will not be repaid; loans that cripple families and communities. 
And, banks will no longer operate in an unregulated, opaque, and 
dangerous market for derivatives that helped lead us to the brink of 
financial catastrophe last year.
  However, the events of the last decade and, particularly, the last 
several years should caution all of us with respect to the efficacy of 
any single legislative initiative. This bill must be thoughtfully and 
vigorously implemented. Indeed, the regulators must be particularly 
vigilant to ensure that this legislative effort is not undone by 
powerful interests who will be constrained by its provisions. In the 
years ahead, regulators must have the resources and the will to enforce 
these provisions to protect consumers and to protect the economy. The 
Congress must be prepared to provide rigorous oversight and move 
quickly to ensure that regulatory supervision will keep pace with a 
dynamic global marketplace.
  More than a decade of excessive risk taking and lax regulation 
culminated in financial collapse in the autumn of 2008. The ensuing 
economic chaos has left millions unemployed and underemployed, 
precipitated a foreclosure crisis that still haunts neighborhoods 
throughout the country, and shattered the dreams of millions of 
American families.
  With this new legislation, we create for the first time a consumer 
watchdog--the Consumer Financial Protection Bureau--that will solely 
focus on protecting consumers from unscrupulous financial activities. 
The law gives this agency independent rulemaking, examination, and 
enforcement responsibilities, and clear authority to prohibit unfair, 
deceptive, and abusive financial activities against middle-class 
families. And it consolidates the existing responsibilities of many 
regulators to ensure that there is a less fragmented, more 
comprehensive, and a fully accountable approach to protecting 
  The new Bureau represents a fundamental shift in how we inform 
Americans about abuses by banks, credit card companies, finance 
companies, payday lenders, and other financial institutions. It will 
focus these companies on doing their job of providing responsible

[[Page S5914]]

and constructive financial products to help families and small 
businesses succeed, rather than destructive products that cause them to 
fail by draining their income and savings.
  I am also pleased that the Senate voted 98 to 1 to approve the 
bipartisan amendment I offered with Senator Scott Brown to create an 
Office of Service Member Affairs within the Consumer Financial 
Protection Bureau. This office will educate and empower members of the 
military and their families, help monitor and respond to complaints, 
and help coordinate consumer protection efforts among Federal and State 
  Although I would have preferred for the new Consumer Financial 
Protection Bureau to have sole authority over consumer protection 
matters for all banks and nonbank financial companies, the final bill 
represents a strong regime for consumer protection, including 
rulewriting authority over all entities. It also provides the Bureau 
with authority to examine and enforce regulations for banks and credit 
unions with assets of over $10 billion; all mortgage-related 
businesses, such as lenders, servicers, and mortgage brokers; payday 
lenders; student lenders; and all large debt collectors and consumer 
reporting agencies.
  One glaring exception is the carve-out for auto lenders. I opposed 
the Brownback amendment that created a special loophole for auto 
dealer-lenders, and I also opposed the compromise that is included in 
the conference report. The original protections in the bill were not 
meant to vilify auto dealers. The vast majority of dealers in my State 
of Rhode Island and across the country are hard-working business owners 
who operate responsibly. Rather, this debate was about ensuring fair 
and consistent scrutiny of all lending institutions. We cannot ignore 
the abuses that service members and others have endured because of 
predatory auto loans. We have learned from the debate that the abuse of 
service members by some auto dealers is an epidemic. During the debate 
I received a memo citing 15 recent examples of auto finance abuses just 
at Camp Lejeune alone. This problem will require close scrutiny after 
the bill is implemented.
  I am also pleased that the legislation includes provisions from the 
Durbin amendment that will protect small business from unreasonable 
credit card company fees by requiring the Federal Reserve to issue 
rules ensuring that fees charged to merchants by credit card companies 
for debit card transactions are both reasonable and proportional to the 
cost of processing those transactions. These provisions will allow 
small businesses to invest more and pass on greater savings to their 
customers rather than spend their earnings on unreasonable interchange 
  The Dodd-Frank Act also creates a new Financial Stability Oversight 
Council, comprised of existing regulators, to identify and respond to 
emerging risks throughout the financial system. This new council 
represents another significant improvement to protect families from 
devastating economic trends by, for the first time, creating one single 
entity responsible for looking across the financial system to prevent 
and respond to problems.
  This section of the conference report also puts in place a new 
rigorous system of capital and leverage standards that will discourage 
banks from getting so large that they put our financial system at risk 
again. The new Financial Stability Oversight Council will make 
recommendations to the Federal Reserve to apply strict rules for 
capital, leverage, liquidity, and risk management so that firms that 
grow too big will face stricter rules that will likely deter the bigger 
is better mentality of too many banks. The council will also make 
recommendations for nonbank financial companies that have grown so 
large or complex that their activities pose a threat to the financial 
stability of the United Sates. No financial institution, bank or 
otherwise, will be able to take risks to multiply their gains without 
holding adequate capital. And, more importantly, such institutions will 
be on notice that the taxpayers will not bail them out.

  The conference report includes a new Office of Financial Research, a 
proposal that I developed to provide an entity capable of researching, 
modeling, and analyzing risks throughout the financial system. For too 
long, those charged with keeping the banking system stable have lacked 
the data and analytical power to keep up with complex financial 
activities. This office ends that situation and takes a bold step 
forward to understand the factors that threaten to rip holes in our 
financial system, provide early warnings, and allow regulators to act 
on that information. As we create this new office, I will ensure that 
it retains its independence and broad data collection, budget, and 
hiring authority, so we are sure to better identify and mitigate 
economic challenges in the future. The challenge presented by the task 
of understanding the financial markets and monitoring systemic risk 
will require a sustained, integrated research effort that brings 
together some of the top researchers and practitioners in the country 
from a diverse range of relevant disciplines. The Office of Financial 
Research must become a world class institution that can go ``toe to 
toe'' with the top Wall Street banks.
  In addition, this law creates a safe way to liquidate large financial 
companies, so that taxpayers will never again have to prop up a failing 
firm to avoid sending shockwaves through the financial system. 
Shareholders and unsecured creditors, not taxpayers, will bear losses, 
and culpable management will be removed. Financial institutions will 
pay for their failures, not taxpayers. Indeed, the existing rules on 
emergency lending authority and debt guarantees will be substantially 
changed to ensure that such tools cannot be used to bail out individual 
firms. This will send an important message to Wall Street: operate at 
your own risk since the taxpayers will no longer be in the business of 
bailing you out.
  The Dodd-Frank Act also establishes important new limits on banks 
engaging in proprietary trading and in owning and investing in hedge 
funds and private equity funds. These provisions are known as the 
Volcker rule or the Merkley-Levin amendment. These new rules will help 
ensure that banks are not betting with consumer bank deposits on risky 
activities for the banks' own profit.
  Until the last few decades, commercial banking and investment banking 
were largely conducted by separate institutions. However, in recent 
years, banks have engaged in a multitude of higher risk activities, 
such as short-term trading for a bank's own profit, and the sponsoring 
of hedge funds and private equity funds. The law changes that and 
prohibits any bank, thrift, holding company, or affiliate from engaging 
in proprietary trading or sponsoring or investing in a hedge fund or 
private equity fund. It also prohibits activities that involve material 
conflicts of interest between banks and their clients, customers, and 
  The conference report also includes two provisions in this area that 
I authored. One requires the chief executive officer at a banking 
entity to certify annually that it does not, directly or indirectly, 
guarantee, assume, or otherwise insure the obligations or performance 
of the hedge fund or private fund. The other provision requires banking 
entities to set aside more capital commensurate with the leverage of 
the hedge fund or private equity fund.
  Although the final provisions included in the bill represent a 
stronger and more targeted approach to reducing risk in our banking 
system, I believe the change during the conference to allow for a 3 
percent de minimus exclusion from the ban on sponsoring or investing in 
hedge funds or private equity funds was unwise. The original Merkley-
Levin proposal did not include such an exclusion. Congress and the 
regulators will need to monitor bank activities very closely in the 
coming years to ensure that this exclusion is not abused.
  The bill also makes some changes to consolidate our country's 
fragmented and inefficient system for supervising banks and holding 
companies. It eliminates the Office of Thrift Supervision, a 
particularly lax supervisor, and redistributes responsibilities for 
bank oversight and supervision to bring greater consistency and more 
effective oversight to all firms. These changes are an important step 
forward, although additional consolidation and streamlining of our 
regulatory agencies could have

[[Page S5915]]

further improved the effectiveness of the system.
  The Dodd-Frank bill also closes a significant gap in financial 
regulation by requiring advisers to hedge funds and private equity 
funds to register with the Securities and Exchange Commission. Based on 
legislation that I introduced, we will for the first time bring 
advisers to those funds within the umbrella of financial regulation. 
This will allow regulators to obtain the basic information they need to 
prevent fraud and mitigate systemic risk, while at the same time 
providing investors with more information and greater transparency.
  Advisers to hedge funds and private equity funds--called ``private 
funds'' in the legislation--will have to register with either the SEC 
or a State, depending on the size of the funds they manage. Fund 
advisers with assets under management over $150 million must register 
with the SEC. Advisers to other types of funds will continue to have 
similar requirements, but the threshold for SEC registration will be 
$100 million. I also successfully included language in the conference 
report to ensure that State registration is only available to eligible 
fund advisers if the State has a registration and examination program.
  From the beginning of this process I fought against any carve-outs in 
this title for private equity, venture capital, and family offices. 
While I successfully convinced the conferees to drop a carve-out for 
private equity advisers, the bill still contains problematic exemptions 
for venture capital firms and family offices. Through hearings and 
other means, I will continue to work to create a regulatory system in 
which none of the fraud and systemic risks that may lurk within private 
pools of capital remain out of view and reach of regulators.
  On derivatives, the bill closes another huge set of regulatory gaps 
by overturning a law that prevented regulators from overseeing the 
shadowy over-the-counter derivatives market and, as a result, bringing 
accountability and transparency to the market. As we have learned from 
AIG and Lehman Brothers, derivatives were at a minimum the accelerant 
that complicated and expanded the financial crisis.
  A major problem with derivatives is that they have not been regulated 
nor well-understood by even those buying and selling them. The 
legislation changes that and brings transparency and greater efficiency 
to the marketplace for swaps--derivatives in which two parties exchange 
certain benefits based on the value of an underlying reference like an 
interest rate--by requiring the reporting of the terms of these 
contracts to regulators and market participants. It will move as many 
swaps as possible from being opaque, bilateral transactions onto 
clearinghouses, exchanges, and other trading platforms. This should 
help make the marketplace fairer and more efficient by providing 
companies and investors with complete information on the market. Firms 
will also be required to put forward sufficient capital to engage in 
these transactions, which should help rein in the excessive speculation 
we saw in the past.
  I successfully offered several amendments during the conference to 
correct potential opportunities for regulatory arbitrage between the 
Securities and Exchange Commission and the Commodity Futures Trading 
Commission. One of my improvements requires the SEC and the CFTC to 
conduct joint rulemaking in certain key areas rather than create 
potential gaps by conducting them separately. Other amendments clarify 
the definitions of mixed swap, security-based swap agreements, and 
index--which are all important terms that fall at the nexus of the two 
agencies' oversight--to ensure that the new swaps rules cannot be gamed 
and manipulated.
  In a significant improvement to public transparency of swaps data, I 
successfully included another amendment that will ensure that 
regulators can require public reporting of trading and pricing data for 
uncleared transactions, not just aggregate data on transactions, just 
as they can for cleared transactions.
  Also important are provisions to give the Federal Reserve a role in 
setting risk management standards for derivatives clearinghouses and 
other critical payment, clearing, and settlement functions, which has 
been a priority of mine given their importance to the financial system 
and their potential vulnerability to both natural and manmade 
  The Dodd-Frank conference report also makes important improvements to 
the Federal Reserve System to ensure that as a financial regulator, it 
is accountable to the American public rather than to Wall Street. Among 
other governance improvements, the bill incorporates my proposal to 
create a new position of Vice Chairman for Supervision on the Federal 
Reserve Board of Governors, which should help ensure that supervision 
does not take a back seat to other priorities. The new Vice Chairman 
will develop policy recommendations for the board regarding the 
supervision and regulation of depository institution holding companies 
and other financial firms supervised by the board. He or she will also 
oversee the supervision and regulation of such firms.
  Although the Senate bill included my proposal to require the head of 
the Federal Reserve Bank of New York to be Presidentially appointed and 
Senate confirmed, the provision was stripped out during conference. If 
the Governors of the Federal Reserve System in Washington are required 
to be confirmed by the Senate, then the President of the Federal 
Reserve Bank of New York, who played a pivotal and perhaps more 
powerful role in obligating taxpayer dollars during the financial 
crisis, should also be subject to the same public confirmation process. 
Wall Street should not have the ability to choose who is in such a 
powerful position. Although the final bill limits class A directors--
who represent the stockholding member banks of the Federal Reserve 
District--from participating in the process, it still allows the other 
directors, who could be bankers or represent other powerful interests, 
to vote for the head of the New York Reserve Bank. I believe that more 
still needs to be done to make this position truly accountable to the 
  The Dodd-Frank Act also includes a number of strong investor 
protection provisions that represent a significant step forward in how 
we oversee our capital markets and ensure that investors have the best 
information available for their decisionmaking. This title reflects 
strong proposals I have put forward as the chairman of the Securities, 
Insurance, and Investment Subcommittee, including robust accountability 
provisions for credit rating agencies, and provisions to strengthen the 
tools and authorities of the Securities and Exchange Commission.
  The conference report includes strong new rules I helped write to 
address problems we saw at credit rating agencies leading up to the 
financial crisis. It creates an Office of Credit Ratings at the SEC to 
increase oversight of nationally recognized statistical rating 
organizations, and contains strong new rules regarding disclosure, 
conflicts of interest, and analyst qualifications. Perhaps most 
significantly, it includes a strong new pleading standard I crafted 
that will make it easier for investors to take legal action if a rating 
agency knowingly or recklessly fails to review key information in 
developing a rating.
  I also worked with the chairman and my colleagues in conference to 
incorporate more than a dozen improvements to the securities laws that 
will protect investors by strengthening the SEC's ability to bring 
enforcement actions, addressing issues revealed by the Madoff fraud, 
and modernizing the SEC's ability to obtain critical information. In 
particular, these provisions would enhance the ability of the SEC to 
hire outside experts, strengthen oversight of fund custodians, 
modernize the ability of the SEC to obtain information from the firms 
it oversees, and clarify and enhance SEC penalties and other 
authorities. I am particularly pleased that the conference report 
contains extraterritoriality language that clarifies that in actions 
brought by the SEC or the Department of Justice, specified provisions 
in the securities laws apply if the conduct within the United States is 
significant, or the external U.S. conduct has a foreseeable substantial 
effect within our country, whether or not the securities are traded on 
a domestic exchange or the transactions occur in the United

[[Page S5916]]

States. I also support the establishment of a program to reward 
whistleblowers when the SEC brings significant enforcement actions 
based upon original information provided by the whistleblower, and I 
look forward to the SEC rules that will detail the framework for this 

  Although I would have preferred the proposal in the Senate bill by 
Senator Schumer to provide the SEC with self-funding, I am pleased that 
the amendment on SEC funding that I offered with Senator Shelby during 
conference was included in the conference report. These provisions 
would keep the SEC budget within the annual appropriations process, but 
change how the funding process would work for the Commission. Our 
proposal includes budget bypass authority, under which the SEC would 
provide Congress with its assessment of its budget needs at the same 
time it provides this information to the Office of Management and 
Budget. In addition, the President, as part of his annual budget 
request to the Congress, would be required to include the SEC's budget 
request in unaltered form. The language will also have the SEC deposit 
up to $50 million per year of the registration fees into a new reserve 
fund, which can be used for longer range planning for technology and 
other agency tools. The SEC will have permanent authority to obligate 
up to $100 million in any fiscal year out of the reserve fund.
  One important investor protection that was also supported by Senators 
Levin, Coburn, and Kaufman but not included in the final bill was 
language that would have corrected what we and many others, including 
legal scholars, regard as the mistaken Supreme Court decision in 
Gustafson v. Alloyd. Before the Supreme Court's decision in this case, 
the rule was simple but clear: be careful not to mislead when selling 
securities in both public and private offerings. After Gustafson, this 
simple rule was needlessly complicated and limited just to public 
  Our amendment, which we will continue to work on a bipartisan basis 
to add to another legislative vehicle in the future, would have put 
investors in private offerings on the same level as investors in public 
offerings, thereby restoring congressional intent and a standard that 
was in place for 60 years before the Supreme Court decided Gustafson.
  One of the lessons learned from the Bush era financial collapse is 
that too often rules were ignored and information was hidden. That is 
why I am extremely disappointed that the conference report includes an 
exemption for companies with less than $75 million in market 
capitalization from the requirements of Sarbanes-Oxley section 404(b). 
This change will exempt more than 5,000 public companies from audits, 
despite the fact that small companies have often been shown to be more 
prone to both accounting fraud and to accounting errors, including 
among the highest rates of restatements. Enacting this exemption in the 
name of reducing paperwork, when extensive evidence indicates that the 
costs of compliance are reasonable and dropping, is unnecessary and 
unwise. I think there will be a price in the future as fraud increases 
and investors suffer.
  I am also disappointed that conferees included a provision that 
overturns a recent court case regarding equity indexed annuities. 
Equity indexed annuities are financial products that combine aspects of 
insurance and securities, but are sold primarily as investments. This 
language will preclude State and Federal securities regulators from 
applying strong disclosure, suitability, and sales practice standards 
to these often risky and harmful products. I believe this is bad 
  Clearly with the State securities regulators on one side of this 
issue, and the insurance regulators on the other--this is not a matter 
which should have been resolved in a conference committee. The 
regulation of equity indexed annuities deserves more consideration 
through hearings and the development of a legislative record that 
informs the Congress of what changes should happen in this area.
  I am pleased that the conference report makes it clear that after 
conducting a study, the SEC has the authority to impose a fiduciary 
duty on brokers who give investment advice, and that the advice must be 
in the best interest of their customers. It also includes language that 
gives shareholders a say on CEO pay with the right to a nonbinding vote 
on salaries and golden parachutes. This gives shareholders the ability 
to hold executives accountable, and to disapprove of misguided 
incentive schemes. I am also happy that after much dispute, the bill 
makes it clear that the SEC has the authority to grant shareholders 
proxy access to nominate directors. These requirements can help shift 
management's focus from short-term profits to long-term stability and 

  I am pleased that the conference report includes several provisions 
to discourage predatory lending and provide much needed foreclosure 
relief. To reduce risk, this legislation requires those companies that 
sell products like mortgage backed securities to hold onto at least 5 
percent of what they're selling so that these companies have the 
incentive to sell only those products they would own themselves. In 
other words, we make sure that there is some ``skin in the game''.
  The conference report also further levels the playing field by 
enacting some commonsense proposals to protect borrowers. Lenders will 
now have to ensure that a borrower has the ability to repay a mortgage, 
and they can no longer steer borrowers into a more expensive mortgage 
product when the borrower qualifies for a more affordable one. The bill 
outlaws pre-payment penalties that trapped so many borrowers into 
unaffordable loans, and those lenders who continue their predatory ways 
will be held accountable by consumers for as high as 3 years of 
interest payments and damages plus attorney's fees.
  Additionally, the Consumer Financial Protection Bureau will have the 
authority to investigate and enforce rules against all mortgage 
lenders, servicers, mortgage brokers, and foreclosure scam operators so 
that hardworking Americans have a strong financial cop on the beat that 
has the interests of consumers in mind.
  Finally, I am particularly pleased that the conference report 
includes several provisions, some of which come from legislation I 
first introduced last Congress and revised this Congress, to provide 
much needed foreclosure relief to those who have borne the brunt of 
this crisis. First, it provides $1 billion for loans to help qualified 
unemployed homeowners with reasonable prospects for reemployment to 
help cover mortgage payments. Second, I worked with my colleagues to 
ensure that the additional funding for HUD's Neighborhood Stabilization 
Program would reach all States, including Rhode Island. Third, I not 
only supported the inclusion of legal assistance for foreclosure-
related issues, but I also fought to ensure that Rhode Island, which 
has one of the highest rates of foreclosure and unemployment, would be 
in a better position to receive priority consideration for this 
assistance. Lastly, I worked to include a national foreclosure database 
to give regulators an important tool to monitor and anticipate issues 
stemming from foreclosures and defaults in our housing markets and 
better pinpoint assistance to struggling homeowners.
  Before I conclude I would like to take a moment to thank Kara Stein 
of my staff, who also serves as the staff director of the Securities, 
Insurance, and Investment Subcommittee, which I chair, and Randy 
Fasnacht, a detailee to the subcommittee from the GAO. They did a 
remarkable job and worked tirelessly. I also want to recognize the 
contributions of James Ahn of my staff as well as the foundation that 
Didem Nisanci, formerly of my staff, helped lay for this process. I 
also want to acknowledge the contributions of many others, including 
Chairman Dodd and his staff.
  I urge my colleagues to support this critical legislation. But the 
Senate's work does not end with the bill's passage. It will have to 
monitor and oversee the law's implementation very closely. The Dodd-
Frank Wall Street Reform and Consumer Protection Act will make 
significant improvements to consumer protection that will benefit 
families and communities in my own State of Rhode Island and across the 
country. It will help create more transparent, fair, and efficient 
capital markets in our country, which will help create jobs and support 
American businesses. And it will provide a more secure and stable 
economic footing for the decades ahead.

[[Page S5917]]

  Mr. AKAKA Mr. President, while I strongly support the Dodd-Frank 
conference report, I am concerned and disappointed that the legislation 
includes a particular provision that would exempt indexed annuity 
products from securities regulation. I ask unanimous consent that the 
accompanying letters in opposition to this provision from AARP, the 
North American Securities Administrators Association, the Consumer 
Federation of America, and the Financial Planning Association be 
printed in the Record immediately following my remarks.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (See exhibit 1.)
  Mr. AKAKA. Indexed annuities combine aspects of insurance and 
securities and are sold primarily as investment products. Consumers 
across the country, including some in Hawaii, have been harmed by the 
deceptive manner in which these products are being sold. For example, a 
seller in Hawaii pushed equity indexed annuities to collect 
unreasonably high commissions at the expense of senior citizens. Those 
investors were harmed by these financial products. Exempting indexed 
annuities from securities regulation would establish a dangerous 
precedent that promotes the development of financial products not 
subject to regulation and investor protection standards.
  Opponents might argue that federal regulation is unnecessary or 
distracts from state regulation. However, Federal regulation is 
necessary to help protect investors by providing consistency and 
uniformity because securities laws can vary across states. Others are 
concerned that Federal regulation will limit access to indexed 
annuities. I counter that these products should only be sold when they 
are subject to the strong disclosure, suitability, and sales practice 
standards provided within the context of our Nation's securities laws.
  I welcome further debate on and examination of this matter, including 
hearings to learn more about the consequences of this provision.


                                     Washington, DC, May 19, 2010.
     Hon. Christopher Dodd,
     U.S. Senate, Committee on Banking, Housing and Urban Affairs, 
         Dirksen Senate Office Building, Washington, DC.
       Dear Senator Dodd: AARP writes to strongly oppose Harkin 
     Amendment #3920, which would deprive investors in equity-
     indexed annuities of needed protections provided by state and 
     federal securities laws.
       These hybrid products combine elements of insurance and 
     securities, but they are sold primarily as investments, not 
     insurance, especially to people who are investing for their 
     own retirement. Growth in equity-indexed annuity value is 
     tied to one of several securities indexes (e.g. the S&P 500 
     or the Dow Jones Industrial Average), and comparing and 
     choosing suitable products can be difficult for investors. 
     These products also come with high fees and have long 
     surrender periods, which may make them unsuitable as 
     investments for most seniors.
       In the fall of 2008, the Securities and Exchange Commission 
     adopted a rule to regulate equity-indexed annuities as 
     securities (Rule 151A). The rule was later challenged, and 
     the Court of Appeals for the District of Columbia Circuit 
     upheld the legal foundation for the SEC's action.
       Because seniors are a target audience for these products, 
     AARP submitted comments to the SEC supporting the rule, 
     stating it was important that Rule 151A supplement, not 
     supplant, state insurance law. In fact, the rule applies 
     specifically to annuities regulated under state insurance 
     law. AARP also submitted a joint amicus brief, along with the 
     North American Securities Administrators Association and 
     MetLife, supporting Rule 151A.
       The Harkin amendment would overturn the SEC rule, which is 
     designed to provide disclosure, suitability, and sales 
     practice protections afforded by state and federal securities 
     laws. The amendment would preempt any further ability of the 
     SEC to regulate in this area. This not only deprives 
     investors of needed protections against widespread abusive 
     sales practices associated with these complex financial 
     products, it also sets a dangerous precedent. If this 
     amendment is adopted, the industry will be encouraged to 
     develop hybrid products in the future specifically designed 
     to evade a regulatory regime designed to protect consumers.
       Regulating indexed annuities as securities is long overdue 
     and vitally important for our nation's investors saving for a 
     secure retirement.
       The SEC's rule on indexed annuities accomplishes this goal 
     in a thoughtful and reasonable fashion, and it should be 
     allowed to take effect. AARP therefore opposes the Harkin 
                                                     David Sloane,
                                            Senior Vice President,
     Government Relations and Advocacy.

                                         North American Securities

                             Administrators Association, Inc.,

                                    Washington, DC, June 14, 2010.
     Hon. Barney Frank,
     Chairman, Committee on Financial Services,
     Washington, DC.
     Hon. Spencer Bachus,
     Chairman, Committee on Financial Services,
     Washington, DC.
     Hon. Christopher Dodd,
     Chairman, Committee on Banking, Housing and Urban 
         Development, Washington, DC.
     Hon. Richard Shelby,
     Ranking Member, Committee on Banking, Housing and Urban 
         Development, Washington, DC.

  Oppose Attempt To Nullify SEC Rulemaking on Equity Indexed Annuities

       Dear Chairmen and Ranking Members: On behalf of state 
     securities regulators, I am writing to oppose an attempt to 
     deprive investors in indexed annuities of the strong 
     protections afforded by our nation's securities laws. A 
     provision to nullify SEC Rule 151 A was not included in 
     either the House or the Senate bill. I would argue that it is 
     not germane to the conference, and the provision should not 
     be accepted by the conferees. Furthermore, efforts such as 
     this one that will ultimately deprive investors of important 
     protections should not be allowed to succeed.
       Indexed annuities are securities, and they are heavily 
     marketed as such. All too often, deceptive sales practices 
     have been used to promote these complicated investment 
     products. As a result, investors--and senior citizens in 
     particular--can fall prey to sales pitches designed to make 
     these investments seem safe and straightforward when in fact 
     they may be neither. Accordingly, it is vitally important 
     that indexed annuities be regulated as securities and 
     subjected to the strong standards afforded by our nation's 
     securities laws.
       To ensure that investors receive these protections, the 
     Securities and Exchange Commission (``SEC'') adopted Rule 
     151A, which would subject indexed annuities to regulation as 
     securities. The United States Court of Appeals for the 
     District of Columbia Circuit upheld the legal foundation for 
     Rule 151 A. Although remanding with respect to certain 
     procedural requirements, the court upheld the rule on 
     substantive legal grounds, finding it was reasonable for the 
     SEC to conclude that indexed annuities should be subject to 
     federal securities regulation.
       Attempts to disparage the SEC's rule as a federal attack on 
     state regulation are unfounded. Critics who level that charge 
     ignore the fact that the rule will NOT interfere with the 
     authority of state insurance commissioners to continue 
     regulating indexed annuities and the companies that issue 
     them. In fact, in order to be covered by the rule, a contract 
     must be subject to regulation as an annuity under state 
     insurance law.
       Nor will the rule impose unreasonable burdens on industry. 
     It will simply require compliance with essentially the same 
     regulatory standards that for 75 years have applied to all 
     companies that issue securities. Moreover, the rule is 
     strictly prospective, applying only to indexed annuities 
     issued after the effective date, and it does not take effect 
     for two years, affording the industry ample time to prepare 
     for compliance. In short, the rule will provide much needed 
     protections for investors without unfairly burdening 
       Indexed annuities are hybrid products that supposedly offer 
     investors the combined advantages of guaranteed minimum 
     returns along with profits from stock market gains. Although 
     indexed annuities may be legitimate vehicles for some people, 
     they have many features, including high costs, significant 
     risks, and long surrender periods, that make these products 
     unsuitable for many investors. Investors have a difficult 
     time understanding these hazards because indexed annuities 
     are hopelessly complex. Compounding the problem are the 
     generous commissions that agents can earn from the sale of 
     these products.
       The problems associated with the marketing of indexed 
     annuities are a matter of record in countless news articles, 
     government warnings, regulatory enforcement actions, and 
     lawsuits filed by innumerable investors seeking damages for 
     the unsuitable and fraudulent sale of indexed annuities. 
     Indeed, these products have become so infamous that they were 
     featured in a prime time Dateline NBC report entitled 
     ``Tricks of the Trade.''
       Without question, the single most effective way to address 
     abuses in the sale of indexed annuities is to regulate them 
     as securities. This is legally appropriate because indexed 
     annuities shift a significant degree of investment risk to 
     purchasers, and therefore pose the very dangers that the 
     federal securities laws were intended to address. Licensing 
     standards under the securities laws will help ensure that 
     agents have the requisite knowledge and character to sell 
     these complex investment products. Under the securities laws, 
     those agents will also be subject to strong supervision 
     requirements. Mandatory registration of indexed annuities as 
     securities will vastly increase the amount of information 
     available to investors concerning the terms, risks, and costs 
     of these offerings. Perhaps most important, the strong 
     investor protection standards that have been a part of 
     securities regulation for decades will deter abuses in the 
     sale of indexed annuities and provide more effective remedies 
     for those who are victimized.

[[Page S5918]]

       The goal of financial reform is to strengthen investor 
     confidence in our markets and regulating indexed annuities as 
     securities under federal law is vitally important to meeting 
     this objective. The SEC's Rule 151A on indexed annuities is a 
     step in the right direction and it should be allowed to take 
     effect. Any attempt to reverse this important regulatory 
     initiative should not be adopted.

                                        Denise Voigt Crawford,

                                    Texas Securities Commissioner,
     NASAA President.

                                         North American Securities

                             Administrators Association, Inc.,

                                    Washington, DC, June 23, 2010.

    Protect Investors: Reject Senate Proposals Included in Title IX

       Dear Conferee: State securities regulators are profoundly 
     disappointed that the Senate conferees approved a Title IX 
     counteroffer that includes two provisions that seriously 
     weaken investor protections in a bill purportedly written to 
     strengthen them. I urge you to reject the Senate fiduciary 
     duty study/rulemaking language and the amendment to exempt 
     certain hybrid annuity products from securities regulation.
       Fiduciary Duty. Instead of the strongest possible fiduciary 
     duty for every financial intermediary providing investment 
     advice, the ``compromise'' study in the Senate offer has been 
     modified to lessen the chances that investors will ever 
     realize the benefits of a fiduciary duty, the single most 
     important investor protection in the reform package. For the 
     following reasons, NASAA must strongly oppose it.
       The study is nothing more than a delay tactic and should be 
     rejected outright.
       It is wasteful of the SEC's resources in that it requires 
     the agency to review and study issues that have already been 
     repeatedly studied.
       If the study remains in place, it should be significantly 
     streamlined so as to avoid needless repetition of prior 
     studies. Further, if there must be a study, it should be 
     required to be conducted on a fully-cooperative basis by both 
     governmental regulators, the SEC and the states, in order to 
     maximize resources and insure its completion within the one-
     year time frame.
       To make matters worse, the rulemaking language proposed by 
     the Senate fails to achieve the original goal of both the 
     Senate Banking Committee and the House Financial Services 
     Committee to impose the Investment Advisers Act fiduciary 
     duty on broker-dealers when providing personalized investment 
     advice to retail customers about securities. Our specific 
     opposition to the Senate rulemaking language includes the 
       The two year rulemaking provision would mean that it could 
     be three years before the SEC even undertakes an attempt to 
     implement a rule to address the study findings. Further, and 
     as more fully discussed below, the conditions imposed by this 
     amendment on any such rulemaking process are so arduous that 
     it is highly doubtful that a rule of any kind would be 
       The new rulemaking language would not result in a fiduciary 
     duty for broker-dealers providing investment advice. The 
     House language authorizing the SEC to adopt rules imposing 
     the full Investment Advisers Act fiduciary duty on brokers 
     when they give personalized advice about securities to retail 
     investors has been removed. It has been replaced by language 
     authorizing the SEC to adopt rules requiring brokers to act 
     in their customers' ``best interests'' which is far short of 
     the fiduciary duty.
       That weakened authority provided to the SEC is subject to 
     such burdensome conditions and limitations that it is 
     unlikely ever to be exercised. Before the SEC could even 
     adopt a rule it would have to complete the study required 
     above and then, as part of the rulemaking, show that no other 
     approach could address the findings of the study. These 
     draconian conditions would make any rule promulgated by the 
     Commission subject to a legal challenge the agency would be 
     unlikely to win.
       The provisions requiring the SEC to harmonize enforcement 
     of the standard, so that it is applied equally to brokers and 
     advisers, have also been deleted.
       Equity Indexed Annuities. The Senate conferees also 
     approved an amendment to preempt securities regulation of 
     equity-indexed annuities and future hybrid products that have 
     both securities and insurance features. State securities 
     regulators have actively pursued enforcement cases involving 
     sales practice abuses of agents selling equity indexed 
     annuities. These state enforcement actions are in danger of 
     being preempted by the Harkin amendment and investors, 
     especially seniors, would be left without the protection of 
     vigorous securities enforcement activity.
       The problems associated with the marketing of indexed 
     annuities are a matter of record in countless news articles, 
     government warnings, regulatory enforcement actions, and 
     lawsuits filed by innumerable investors seeking damages for 
     the unsuitable and fraudulent sale of indexed annuities. It 
     was these problems that led the SEC to adopt Rule 151A after 
     a fair and open rulemaking process.
       The best way to ensure adequate investor protections in the 
     sale of equity indexed annuities is to allow the SEC to 
     exercise its appropriate authority over these products. State 
     securities regulators urge you to reject this amendment as it 
     has no place in a bill intended to strengthen investor 
       In closing, we are extremely dissatisfied that the 
     provisions in the Investor Protection title continue to be 
     weakened. We urge you to reverse this trend, reject the 
     Senate counteroffer and insist on strong protections for our 
     nation's investors.

                                        Denise Voigt Crawford,

                                                  NASAA President,
     Texas Securities Commissioner.

                                                  NASAA & CFA,

                                                     May 14, 2010.

         Opposition to Harkin/Johanns/Leahy Amendment No. 3920

       Dear Senator: We are writing to oppose the Harkin/Johanns/
     Leahy amendment, which deprives investors in indexed 
     annuities of the strong protections afforded by our nation's 
     securities laws. Indexed annuities are securities, and they 
     are heavily marketed as such. All too often, deceptive sales 
     practices have been used to promote these complicated 
     investment products. As a result, investors--and senior 
     citizens in particular--can fall prey to unsuitable sales. 
     Accordingly, it is vitally important that indexed annuities 
     be regulated as securities and subjected to the strong 
     disclosure, suitability, and sales practice standards 
     afforded by our nation's securities laws.
       To ensure that investors receive these protections, the 
     Securities and Exchange Commission (``SEC'') adopted Rule 
     151A, which would subject indexed annuities to regulation as 
     securities. The United States Court of Appeals for the 
     District of Columbia Circuit upheld the legal foundation for 
     Rule 151A. Although remanding with respect to certain 
     procedural requirements, the court upheld the rule on 
     substantive legal grounds, finding it was reasonable for the 
     SEC to conclude that indexed annuities should be subject to 
     federal securities regulation.
       Attempts to disparage the SEC's rule as a federal attack on 
     state regulation are unfounded. Critics who level that charge 
     ignore the fact that the rule will NOT interfere with the 
     authority of state insurance commissioners to continue 
     regulating indexed annuities and the companies that issue 
     them. In fact, in order to be covered by the rule, a contract 
     must be subject to regulation as an annuity under state 
     insurance law.
       Nor will the rule impose unreasonable burdens on industry. 
     It will simply require compliance with essentially the same 
     regulatory standards that for 75 years have applied to all 
     companies that issue securities. Moreover, the rule is 
     strictly prospective, applying only to indexed annuities 
     issued after the effective date, and it does not take effect 
     for two years, affording the industry ample time to prepare 
     for compliance. In short, the rule will provide much needed 
     protections for investors without unfairly burdening 
       Indexed annuities are hybrid products that supposedly offer 
     investors the combined advantages of guaranteed minimum 
     returns along with profits from stock market gains. Although 
     indexed annuities may be legitimate vehicles for some people, 
     they have many features, including high costs, significant 
     risks, and long surrender periods, that make these products 
     unsuitable for many investors. Investors have a difficult 
     time understanding these hazards because indexed annuities 
     are hopelessly complex. Compounding the problem are the 
     generous commissions that agents can earn from the sale of 
     these products.
       The problems associated with the marketing of indexed 
     annuities are a matter of record in countless news articles, 
     government warnings, regulatory enforcement actions, and 
     lawsuits filed by innumerable investors seeking damages for 
     the unsuitable and fraudulent sale of indexed annuities. 
     Indeed, these products have become so infamous that they were 
     featured in a prime time Dateline NBC report entitled 
     ``Tricks of the Trade.''
       Without question, the single most effective way to address 
     abuses in the sale of indexed annuities is to regulate them 
     as securities. This is legally appropriate because indexed 
     annuities shift a significant degree of investment risk to 
     purchasers, and therefore pose the very dangers that the 
     federal securities laws were intended to address. Licensing 
     standards under the securities laws will help ensure that 
     agents have the requisite knowledge and character to sell 
     these complex investment products. Under the securities laws, 
     those agents will also be subject to strong supervision 
     requirements. Mandatory registration of indexed annuities as 
     securities will vastly increase the amount of information 
     available to investors concerning the terms, risks, and costs 
     of these offerings. Perhaps most important, the strong 
     antifraud provisions and suitability standards that have been 
     a part of securities regulation for decades will deter abuses 
     in the sale of indexed annuities and provide more effective 
     remedies for those who are victimized.
       Regulating indexed annuities as securities under federal 
     law is long overdue and vitally important for our nation's 
     investors. The SEC's Rule 151A on indexed annuities 
     accomplishes this goal in a thoughtful and reasonable 
     fashion, and it should be allowed to take effect. The Harkin/
     Johanns/Leahy amendment would reverse this important 
     regulatory initiative and should not be adopted.
           Respectfully submitted,
     Denise Voigt Crawford,
       President, NASAA.
     Barbara Roper,

[[Page S5919]]

       Director of Investor Protection, CFA.

                                   Consumer Federation of America,

                                               Fund Democracy,

                                                    June 12, 2010.
     Hon. Christopher Dodd,
     Chairman, Committee on Banking, Housing and Urban 
         Development, U.S. Senate, Washington, DC.
     Hon. Barney Frank,
     Chairman, Financial Services Committee, House of 
         Representatives, Washington, DC.
     Hon. Richard Shelby,
     Ranking Member, Committee on Banking, Housing and Urban 
         Development, U.S. Senate, Washington, DC.
     Hon. Spencer Bachus,
     Ranking Member, Financial Services Committee, House of 
         Representatives, Washington, DC.

 Protect Investors and the Legislative Process: Reject Equity-Indexed 
                     Annuities Preemption Amendment

       Dear Chairman Dodd, Ranking Member Shelby, Chairman Frank, 
     and Ranking Member Bachus: We understand that members of the 
     insurance industry continue to press for inclusion in the 
     conference report of anti-consumer legislation to exempt 
     equity-indexed annuities from securities regulation. We are 
     writing to urge you to resist any such efforts.
       Equity-indexed annuities are hybrid products that combine 
     elements of both insurance and securities, but they are sold 
     primarily as investments. Indeed, as documented in a seven-
     part Dateline NBC hidden camera expose, they are among the 
     most abusively sold products on the market today. Responding 
     to a rising level of complaints, the Securities and Exchange 
     Commission voted in late 2008 to adopt rules regulating 
     equity-indexed annuities as securities, a move that was 
     immediately challenged in court by the insurance industry. In 
     deciding the case, a U.S. Court of Appeals sided with the 
     agency on the basic issue of whether equity-indexed annuities 
     should be regulated as securities while remanding the rule 
     with respect to procedural issues.
       Having failed to prevail in court, the insurance industry 
     has turned to Congress to preempt legitimate securities 
     regulation of this product. We urge you to resist these 
     efforts for the following reasons:
       Equity-indexed annuities are complex products whose returns 
     fluctuate with performance of the securities markets. Absent 
     regulation under securities laws, they can be sold by 
     salespeople with no more understanding of the markets than 
     the customer.
       Although the National Association of Insurance 
     Commissioners has developed a model suitability rule for 
     annuity sales, it has not been adopted in all states. 
     Regulation under securities laws would provide national 
     uniformity, would bring to bear the added regulatory 
     resources of the SEC, state securities regulators, and FINRA, 
     and would provide additional investor protections in the form 
     of improved disclosures and limits on excessive compensation.
       Exempting equity-indexed annuities from securities 
     regulation would set a dangerous precedent and encourage the 
     development of additional hybrid products designed 
     specifically to evade a more rigorous form of regulation.
       This highly controversial measure--which is opposed by 
     consumer advocates as well as state and federal securities 
     regulators--was not included in either the House or the 
     Senate bill and is not germane to the underlying legislation. 
     To include it in the conference report would be a gross 
     violation of the integrity of the legislative process. We 
     urge you to protect investors and the legislative process by 
     preventing the equity-indexed annuities provision from being 
     added to the conference report.
           Respectfully submitted,
     Barbara Roper,
       Director of Investor Protection, Consumer Federation of 
     Mercer Bullard,
       Executive Director, Fund Democracy.

                               Financial Planning Association,

                                    Washington, DC, June 15, 2010.
     Hon. Barney Frank, Chairman,
     Hon. Spencer Bachus,
     Ranking Member, Committee on Financial Services, House of 
         Representatives, Washington, DC.
     Hon. Christopher J. Dodd, Chairman,
     Hon. Richard C. Shelby,
     Ranking Member, Committee on Banking, Housing and Urgan 
         Affairs, U.S. Senate, Washington, DC.
       Dear Chairman Frank, Chairman Dodd, Ranking Member Bachus, 
     and Ranking Member Shelby: I am writing to oppose efforts to 
     strip the Securities and Exchange Commission (SEC) of 
     authority to oversee sales practices in connection with 
     indexed annuities that are marketed as investment products. 
     At a time when Congress is seeking ways to improve consumer 
     protections in the financial services sector, the Financial 
     Planning Association (FPA) believes it would be completely 
     inappropriate to preempt the SEC from exercising its existing 
     authority to protect consumers from well-documented abuses.
       Indexed annuities have a minimum guaranteed return, but the 
     actual return will vary based on the performance of a 
     securities index, such as the S&P 500. FPA members are very 
     familiar with indexed annuities, with many financial planners 
     specializing in retirement planning and more than half of our 
     membership licensed to sell insurance and annuity products. 
     They may recommend annuities, including indexed annuities, as 
     an important component of a client's overall financial plan. 
     As with other financial products, however, proper oversight 
     is needed to help protect consumers from the few who would 
     take advantage of them. FPA urges you to reject any efforts 
     to strip the SEC of authority to protect purchasers of 
     indexed annuities in the same way they protect those who 
     purchase variable annuities.
       In 2008, the SEC promulgated rules that would have brought 
     indexed annuities under the same sales practice standards as 
     variable annuities and other securities if they are marketed 
     as investment products. Applying a two part test in 
     accordance with Supreme Court precedent, the SEC sought to 
     exercise oversight based on the allocation of investment risk 
     between the insurance company and the customer, and on how 
     the annuity is marketed. Notably, the SEC left regulation of 
     the product itself to state insurance regulators and sought 
     to merely oversee sales practices when the insurer chooses to 
     market indexed annuities as an investment product.
       FPA supported the SEC rule, as a measured and appropriate 
     move to address a very real problem (See comment letter at 
     www.fpanet.org/GovernmentRelations/). Opponents challenged 
     the rule in court arguing that the SEC lacked authority, but 
     the rule was vacated on other, technical grounds. Now they 
     are seeking to preempt the SEC from overseeing the sales 
     practices of these products, as it has effectively done so 
     for variable annuities.
       But the calculus is simple: if a product is marketed and 
     sold as an investment product, and if the purchaser is 
     bearing a certain investment risk, applying standard investor 
     protections is common sense. Any issues particular to indexed 
     annuities can be addressed through the normal rulemaking and 
     comment process.
       Consumer confidence and consumer protection are two of the 
     most important considerations as you deliberate over 
     important changes to our financial regulatory system. I urge 
     you to resist any attempts to handcuff the SEC before it has 
     even had an opportunity to bring its consumer protection 
     resources to bear in this area.
       Thank you for your consideration. If you have any 
     questions, or if FPA can provide additional information, 
     please contact me.
           Very truly yours,
                                                  Daniel J. Barry,
                                 Director of Government Relations.

  Mrs. LINCOLN. Mr. President, as I have previously discussed, section 
737 of H.R. 4173 will grant broad authority to the Commodity Futures 
Trading Commission to once and for all set aggregate position limits 
across all markets on non-commercial market participants. During 
consideration of this bill we all learned many valuable lessons about 
how the commodities markets operate and the impact that highly 
leveraged, and heretofore unregulated swaps, have on the price 
discovery function in the futures markets. I believe the adoption of 
aggregate position limits, along with greater transparency, will help 
bring some normalcy back to our markets and reduce some of the 
volatility we have witnessed over the last few years.
  I also recognize that in setting these limits, regulators must 
balance the needs of market participants, while at the same time 
ensuring that our markets remain liquid so as to afford end-users and 
producers of commodities the ability to hedge their commercial risk. 
Along these lines I do believe that there is a legitimate role to be 
played by market participants that are willing to enter into futures 
positions opposite a commercial end-user or producer. Through this 
process the markets gain additional liquidity and accurate price 
discovery can be found for end-users and producers of commodities.
  However, I still hold some reservations about these financial market 
participants and the negative impact of excessive speculation or long 
only positions on the commodities markets. While I have concerns about 
the role these participants play in the markets, I do believe that 
important distinctions in setting position limits on these participants 
are warranted. In implementing section 737, I would encourage the CFTC 
to give due consideration to trading activity that is unleveraged or 
fully collateralized, solely exchange-traded, fully transparent, 
clearinghouse guaranteed, and poses no systemic risk to the clearing 
system. This type of trading activity is distinguishable from highly 
leveraged swaps trading, which not only poses systemic risk absent the 
proper safeguards that an exchange traded, cleared system provides, but 
also may distort price discovery. Further, I

[[Page S5920]]

would encourage the CFTC to consider whether it is appropriate to 
aggregate the positions of entities advised by the same advisor where 
such entities have different and systematically determined investment 
  I wish to also point out that section 719 of the conference report 
calls for a study of position limits to be undertaken by the CFTC. In 
conducting that study, it is my expectation that the CFTC will address 
the soundness of prudential investing by pension funds, index funds and 
other institutional investors in unleveraged indices of commodities 
that may also serve to provide agricultural and other commodity 
contracts with the necessary liquidity to assist in price discovery and 
hedging for the commercial users of such contracts.
  Mr. President, as the Chairman of the Senate Committee on 
Agriculture, Nutrition and Forestry, I am proud to say that the bill 
coming out of our committee was the base text for the derivatives title 
in the Senate passed bill. The Senate passed bill's derivatives title 
was the base text used by the conference committee. The conference 
committee made changes to the derivatives title, adopting several 
provisions from the House passed bill. The additional materials that I 
am submitting today are primarily focused on the derivatives title of 
the conference report. They are intended to provide clarifying 
legislative history regarding certain provisions of the derivatives 
title and how they are supposed to work together.
  I ask unanimous consent that this material be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

       The major components of the derivatives title include: 100 
     percent reporting of swaps and security-based swaps, 
     mandatory trading and clearing of standardized swaps and 
     security-based swaps, and real-time price reporting for all 
     swap transactions--those subject to mandatory trading and 
     clearing as well as those subject to the end user clearing 
     exemption and customized swaps. Swap dealers, security-based 
     swap dealers, major swap participants and major security-
     based swap participants will all be required to register with 
     either the Commodity Futures Trading Commission, CFTC, or the 
     Securities and Exchange Commission, SEC, and meet additional 
     requirements including capital, margin, reporting, 
     examination, and business conduct requirements. All swaps 
     that are ``traded'' must be traded on either a designated 
     contract market or a swap execution facility. All security-
     based swaps must be traded on either a national securities 
     exchange or a security-based swap execution facility. It is a 
     sea change for the $600 trillion swaps market. Swaps and 
     security-based swaps which are not subject to mandatory 
     exchange trading or clearing will be required to submit 
     transaction data to swap data repositories or security-based 
     swap data repositories. These new ``data repositories'' will 
     be required to register with the CFTC and SEC and be subject 
     to statutory duties and core principals which will assist the 
     CFTC and SEC in their oversight and market regulation 
       There are several important definitional and jurisdictional 
     provisions in title VII. For instance, the new definitions of 
     ``swap'' and ``security-based swap'' are designed to maintain 
     the existing Shad Johnson jurisdictional lines between the 
     CFTC and the SEC which have been in place since 1982. Under 
     the Shad Johnson accord, the CFTC has jurisdiction over 
     commodity-based instruments as well as futures and options on 
     broad-based security indices (and now swaps), while the SEC 
     has jurisdiction over security-based instruments--both single 
     name and narrow-based security indices--and now security-
     based swaps. The Shad Johnson jurisdictional lines were 
     reaffirmed in 2000 with the passage of the Commodity Futures 
     Modernization Act, CFMA, as it related to security futures 
     products. Maintaining existing jurisdictional lines between 
     the two agencies was an important goal of the Administration, 
     as reflected in their draft legislation. This priority was 
     reflected in the bills passed out of the Senate and House 
     agricultural committees and through our respective chambers 
     and now reflected in the conference report.
       As noted above, the conference report maintains the Shad 
     Johnson jurisdictional accord. We made it clear that the CFTC 
     has jurisdiction under Section 2(a)(1) of the Commodity 
     Exchange Act, ``CEA'', over both interest rate swaps and 
     foreign exchange swaps and forwards. The definition of 
     ``swap'' under the CEA specifically lists interest rate swaps 
     as being a swap. This is CEA Section 1a(47)(A)(iii)(I). This 
     is appropriate as the CFTC has a long history of overseeing 
     interest rate futures. The futures exchanges have listed and 
     traded interest rate contracts for nearly 40 years. The CME 
     has listed for trading quarterly settled interest rate swap 
     future contracts. In the last 24 months, some designated 
     contract markets have listed futures contracts which mirror 
     interest rate swaps in design, function, maturity date and 
     all other material aspects. In addition, some of the CFTC 
     registered clearing houses have listed and started to clear 
     both these interest rate swap futures contracts as well as 
     interest rate swap contracts. This is on top of the nearly 
     $200 trillion in interest rate swap contracts which have 
     been cleared at LCH.Clearnet in London.
       Also, under this legislation, foreign exchange swaps and 
     forwards come under the CFTC's jurisdiction under Section 
     2(a)(1) of the CEA. We listed in the definition of ``swap'' 
     certain types of common swaps, including ``foreign exchange 
     swaps'' so it would be clear that they are regulated under 
     the CEA. See CEA Section 1a(47)(A)(iii)(VIII). In addition, 
     the terms ``foreign exchange forward'' and ``foreign exchange 
     swap'' are defined in the CEA itself. See CEA Section 1a(24) 
     and (25). One should note that foreign exchange forwards are 
     treated as swaps under the CEA.
       The CEA as amended permits the Secretary of the Treasury to 
     make a written determination to exempt either or both foreign 
     exchange swaps and or foreign exchange forwards from the 
     mandatory trading and clearing requirements of the CEA, which 
     applies to swaps generally. Under new Section 1b of the CEA, 
     the Secretary must consider certain factors in determining 
     whether to exempt either foreign exchange swaps or foreign 
     exchange forwards from being treated like all other swaps. 
     These factors include: (1) whether the required trading and 
     clearing of foreign exchange swaps and foreign exchange 
     forwards would create systemic risk, lower transparency, or 
     threaten the financial stability of the United States; (2) 
     whether foreign exchange swaps and foreign exchange forwards 
     are already subject to a regulatory scheme that is materially 
     comparable to that established by this Act for other classes 
     of swaps; (3) the extent to which bank regulators of 
     participants in the foreign exchange market provide adequate 
     supervision, including capital and margin requirements; (4) 
     the extent of adequate payment and settlement systems; and 
     (5) the use of a potential exemption of foreign exchange 
     swaps and foreign exchange forwards to evade otherwise 
     applicable regulatory requirements. In making a written 
     determination to exempt such swaps from regulation, the 
     Secretary must make certain findings. The Secretary's written 
     determination is not effective until it is filed with the 
     appropriate Congressional Committees and provides the 
     following information: (1) an explanation regarding why 
     foreign exchange swaps and foreign exchange forwards are 
     qualitatively different from other classes of swaps in a way 
     that would make the foreign exchange swaps and foreign 
     exchange forwards ill-suited for regulation as swaps; and (2) 
     an identification of the objective differences of foreign 
     exchange swaps and foreign exchange forwards with respect to 
     standard swaps that warrant an exempted status. These 
     provisions and this process related to exempting foreign 
     exchange swaps and foreign exchange forwards from swaps 
     regulation will be, and should be, difficult for the 
     Secretary of the Treasury to meet. The foreign exchange swaps 
     and foreign exchange forward market is approximately $65 
     trillion and the second largest part of the swaps market. It 
     is important that the foreign exchange swaps market be 
     transparent as well as subject to comprehensive and vigorous 
     market oversight so there are no questions about possible 
     manipulation of currencies or exchange rates.
       I would also note that we have made it clear that even if 
     foreign exchange swaps and forwards are exempted by the 
     Secretary of the Treasury from the mandatory trading and 
     clearing requirements which are applicable to standardized 
     swaps, that all foreign exchange swaps and forwards 
     transactions must be reported to a swap data repository under 
     the CFTC's jurisdiction. In addition, we have made it clear 
     that to the extent foreign exchange swaps and forwards are 
     listed for trading on a designated contract market or cleared 
     through a registered derivatives clearing organization that 
     such swap contracts are subject to the CFTC's jurisdiction 
     under the CEA and that the CFTC retains its jurisdiction over 
     retail foreign exchange transactions.
       We have made some progress in this legislation with respect 
     to clarifying CFTC jurisdiction and preserving SEC 
     enforcement jurisdiction over instruments which are 
     ``security-based swap agreements.'' Security-based swap 
     agreements are actually ``swaps'' and subject to both the 
     CFTC and the SEC's jurisdiction. One will notice that we have 
     inserted the definition of ``security-based swap agreements'' 
     in both the Commodity Exchange Act and the Securities and 
     Exchange Act--section 1a(47)(A)(v) of the CEA (7 U.S.C. 
     1a(47)(A)(v)) and section 3(a)(78) of the SEA of 1934 (15 
     U.S.C. 78c(a)(78)). The term ``security-based swap 
     agreement'' is a hold-over term from the CFMA of 2000. In the 
     CFMA, Congress chose to exclude ``swap agreements'' from 
     regulation by the CFTC and ``security-based swap agreements'' 
     from regulation by the SEC. While the CFMA exclusions were 
     broad, the SEC retained limited authority--anti fraud and 
     anti manipulation enforcement authority--with respect to 
     security-based swap agreements. The Agriculture Committee and 
     Congress chose to preserve that existing enforcement 
     jurisdiction of the SEC related to those swaps which 
     qualify as security-based swap agreements. The swaps which 
     will qualify as security-based swap agreements is quite 
     limited. It would appear that non narrow-based security 
     index swaps and credit default swaps may be

[[Page S5921]]

     the only swaps considered to be security-based swap 
     agreements. The rationale for providing the SEC with 
     enforcement authority with respect to security-based swap 
     agreements in the CFMA was premised on the fact that the 
     CFTC didn't have as extensive an anti-fraud or anti-
     manipulation authority as the SEC. This lack of CFTC 
     authority was remedied in the title VII so that the CFTC 
     now has the same authority as the SEC. It is good policy 
     to have a second set of enforcement eyes in this area. The 
     SEC can and should be able to back up the CFTC on 
     enforcement issues without interceding in the main market 
     and product regulation. In the new legislation, we repeal 
     the specific exclusions related to swap agreements and 
     security-based swap agreements in both the CEA and the 
     Securities Exchange Act of 1934, ``SEA''. One should note 
     that the definition of ``security-based swap agreement'' 
     in the SEA specifically excludes any ``security-based 
     swap'', which means that SBSAs are really swaps. This 
     point is made clear in the definition of ``swap'' under 
     the CEA. Under Section 1a(47)(A)(v) it states that ``any 
     security-based swap agreement which meets the definition 
     of ``swap agreement'' as defined in Section 206A of the 
     Gramm-Leach-Bliley Act of which a material term is based 
     on the price, yield, value or volatility of any security, 
     or any group or index of securities, or any interest 
     therein.'' Regulators should note that Congress chose to 
     refer to security-based swap agreements as swaps at 
     several points in the CEA. Further, the CFTC and the SEC, 
     after consultation with the Federal Reserve, are to 
     undertake a joint rulemaking related to security-based 
     swap agreements. The regulators should follow 
     Congressional intent in this area and preserve the SEC's 
     anti-fraud and anti-manipulation enforcement authority for 
     that limited group of swaps which are considered to be 
     security-based swap agreements.
       We have introduced a new term in this legislation, which is 
     ``mixed swap''. The term is found in both the CEA and the 
     SEA--CEA Section 1a(47)(D) and SEA Section 3(a)(68)(D). The 
     term is subject to a joint rulemaking between the CFTC and 
     the SEC. The term ``mixed swap'' refers to those swaps which 
     have attributes of both security-based swaps and regular 
     swaps. A ``mixed swap'' is somewhat similar to a ``hybrid 
     product'' under the CEA which has attributes of both 
     securities and futures. CEA Section 2(f). Hybrid products 
     must be predominantly securities to be excluded from 
     regulation as contracts of sale of a commodity for future 
     delivery under the CEA. While there is no ``predominance'' or 
     ``primarily'' test in the definition of ``mixed swap'' the 
     regulators should ensure that when deciding the 
     jurisdictional allocation of such mixed swaps in the joint 
     rulemaking process, that mixed swaps should be allocated to 
     either the CFTC or the SEC based on clear and unambiguous 
     criteria like a primarily test. A de minimis amount of 
     security-based swap attributes should not bring a swap into 
     the SEC's jurisdiction just as a de minimis amount of swap 
     attributes should not bring a security-based swap into the 
     CFTC's jurisdiction. While there will be some difficult 
     decisions to be made on individual swap contracts, it will be 
     fairly clear most of the time whether a particular swap is 
     more security-based swap or swap. We expect the regulators to 
     be reasonable in their joint rulemaking and interpretations.
       The mandatory clearing and trading of certain swaps and 
     security-based swaps, along with real-time price reporting, 
     is at the heart of swaps market reform. Under the conference 
     report, swaps and security-based swaps determined to be 
     subject to the mandatory clearing requirement by the 
     regulators would also be required to be traded on a 
     designated contract market, a national securities exchange, 
     or new swap execution facilities or security-based swap 
     execution facilities. To avoid any conflict of interests, the 
     regulators--the CFTC and the SEC--will make a determination 
     as to what swaps must be cleared following certain statutory 
     factors. It is expected that the standardized, plain vanilla, 
     high volume swaps contracts--which according to the Treasury 
     Department are about 90 percent of the $600 trillion swaps 
     market--will be subject to mandatory clearing. Derivatives 
     clearing organizations and clearing agencies are required to 
     submit all swaps and security-based swaps for review and 
     mandatory clearing determination by regulators. It will also 
     be unlawful for any entity to enter into a swap without 
     submitting it for clearing if that swap has been determined 
     to be required to clear. It is our understanding that 
     approximately 1,200 swaps and security-based swaps contracts 
     are currently listed by CFTC-registered clearing houses and 
     SEC-registered clearing agencies for clearing. Under the 
     conference report, these 1,200 swaps and security-based swaps 
     already listed for clearing are deemed ``submitted'' to the 
     regulators for review upon the date of enactment. It is my 
     expectation that the regulators, who are already familiar 
     with these 1,200 swap and security-based swap contracts, 
     will work within the 90 day time frame they are provided 
     to identify which of the current 1,200 swap and security-
     based swap agreements should be subject to mandatory 
     clearing requirements. The regulators may also identify 
     and review swaps and security-based swaps which are not 
     submitted for clearinghouse or clearing agency listing and 
     determine that they are or should be subject to mandatory 
     clearing requirement. This provision is considered to be 
     an important provision by senior members of the Senate 
     Agriculture Committee, as it removes the ability for the 
     clearinghouse or clearing agency to block a mandatory 
     clearing determination.
       The conference report also contains an end user clearing 
     exemption. Under the conference report, end users have the 
     option, but not the obligation, to clear or not clear their 
     swaps and security-based swaps that have been determined to 
     be required to clear, as long as those swaps are being used 
     to hedge or mitigate commercial risk. This option is solely 
     the end users' right. If the end user opts to clear a swap, 
     the end user also has the right to choose the clearing house 
     where the swap will be cleared. Further, the end user has the 
     right, but not the obligation, to force clearing of any swap 
     or security-based swap which is listed for clearing by a 
     clearing house or clearing agency but which is not subject to 
     mandatory clearing requirement. Again the end user has the 
     right to choose the clearing house or clearing agency where 
     the swap or security-based swap will be cleared. The option 
     to clear is meant to empower end users and address the 
     disparity in market power between the end users and the swap 
     dealers. Under the conference report, certain specified 
     financial entities are prohibited from using the end user 
     clearing exemption. While most large financial entities are 
     not eligible to use the end user clearing exemption for 
     standardized swaps entered into with third parties, it would 
     appropriate for regulators to exempt from mandatory clearing 
     and trading inter affiliate swap transactions which are 
     between for wholly-owned affiliates of a financial entity. We 
     would further note that small financial entities, such as 
     banks, credit unions and farm credit institutions below $10 
     billion in assets--and possibly larger entities--will be 
     permitted to utilize the end user clearing exemption with 
     approval from the regulators. The conference report also 
     includes an anti-evasion provision which provides the CFTC 
     and SEC with authority to review and take action against 
     entities which abuse the end user clearing exemption.
       In addition to the mandatory clearing and trading of swaps 
     discussed above, the conference report retains and expands 
     the Senate Agriculture Committee's real time swap transaction 
     and price reporting requirements. The Agriculture Committee 
     focused on swap market transparency while it was constructing 
     the derivatives title. As stated earlier, the conference 
     report requires 100% of all swaps transactions to be 
     reported. It was universally agreed that regulators should 
     have access to all swaps data in real time. On the other 
     hand, there was some outstanding questions regarding the 
     capacity, utility and benefits from public reporting of swaps 
     transaction and pricing data. I would like to respond to 
     those questions. Market participants--including exchanges, 
     contract markets, brokers, clearing houses and clearing 
     agencies--were consulted and affirmed that the existing 
     communications and data infrastructure for the swaps markets 
     could accommodate real time swap transaction and price 
     reporting. Speaking to the benefits of such a reporting 
     requirement, the committee could not ignore the experience of 
     the U.S. Securities and Futures markets. These markets have 
     had public disclosure of real time transaction and pricing 
     data for decades. We concluded that real time swap 
     transaction and price reporting will narrow swap bid/ask 
     spreads, make for a more efficient swaps market and benefit 
     consumers/counterparties overall. For these reasons, the 
     Senate Agriculture Committee required ``real time'' price 
     reporting for: (1) All swap transactions which are subject to 
     mandatory clearing requirement; (2) All swaps under the end 
     user clearing exemption which are not cleared but reported to 
     a swap data repository subject; and, (3) all swaps which 
     aren't subject to the mandatory clearing requirement but 
     which are cleared at a clearing house or clearing agency--
     under permissive, as opposed to mandatory, clearing. The 
     conference report adopted this Senate approach with one 
     notable addition authored by Senator Reed. The Reed 
     amendment, which the conference adopted, extended real time 
     swap transaction and pricing data reporting to ``non-
     standardized'' swaps which are reported to swap data 
     repositories and security-based swap data repositories. 
     Regulators are to ensure that the public reporting of swap 
     transactions and pricing data does not disclose the names or 
     identities of the parties to the transactions.
       I would like to specifically note the treatment of ``block 
     trades'' or ``large notional'' swap transactions. Block 
     trades, which are transactions involving a very large number 
     of shares or dollar amount of a particular security or 
     commodity and which transactions could move the market 
     price for the security or contract, are very common in the 
     securities and futures markets. Block trades, which are 
     normally arranged privately, off exchange, are subject to 
     certain minimum size requirements and time delayed 
     reporting. Under the conference report, the regulators are 
     given authority to establish what constitutes a ``block 
     trade'' or ``large notional'' swap transaction for 
     particular contracts and commodities as well as an 
     appropriate time delay in reporting such transaction to 
     the public. The committee expects the regulators to 
     distinguish between different types of swaps based on the 
     commodity involved, size of the market, term of the 
     contract and liquidity in that contract and related 
     contracts, i.e; for instance the size/dollar amount of 
     what constitutes a

[[Page S5922]]

     block trade in 10-year interest rate swap, 2-year dollar/
     euro swap, 5-year CDS, 3-year gold swap, or a 1-year 
     unleaded gasoline swap are all going to be different. 
     While we expect the regulators to distinguish between 
     particular contracts and markets, the guiding principal in 
     setting appropriate block-trade levels should be that the 
     vast majority of swap transactions should be exposed to 
     the public market through exchange trading. With respect 
     to delays in public reporting of block trades, we expect 
     the regulators to keep the reporting delays as short as 
       I firmly believe that taking the Senate bill language 
     improved the final conference report by strengthening the 
     regulators enforcement authority dramatically. The Senate 
     Agriculture Committee looked at existing enforcement 
     authority and tried to give the CFTC the authority which it 
     needs to police both the futures and swaps markets. As I 
     mentioned above, we provided the CFTC with anti-fraud and 
     anti-manipulation authority equal to that of the SEC with 
     respect to non narrow-based security index futures and swaps 
     so as to equalize the SEC and CFTC enforcement authority in 
     this area. The CFTC requested, and received, enforcement 
     authority with respect to insider trading, restitution 
     authority, and disruptive trading practices. In addition, we 
     added in anti-manipulation authority from my good friend 
     Senator Cantwell. Senator Cantwell and I were concerned with 
     swaps participants knowingly and intentionally avoiding the 
     mandatory clearing requirement. We were able to reach an 
     agreement with the other committees of jurisdiction by 
     providing additional enforcement authority that I believe 
     will address the root problem. Further, I would be remiss in 
     not mentioning that we provided specific enforcement 
     authority under Section 9 for the CFTC to bring actions 
     against persons who purposely evade the mandatory clearing 
     requirement. This provision is supposed to work together with 
     the anti-evasion provision in the clearing section. Another 
     important provision is one related to fraud and an episode 
     earlier this year involving Greece and the use of cross 
     currency swaps. We gave new authority to the CFTC to go after 
     persons who enter into a swap knowing that its counterparty 
     intends to use the swap for purposes of defrauding a third 
     party. This authority, which is meant to expand the CFTC's 
     existing aiding and abetting authority, should permit the 
     CFTC to bring actions against swap dealers and others who 
     assist their counterparties in perpetrating frauds on third 
     parties. All in all, the CFTC's enforcement authority was 
     expanded to meet known problems and fill existing holes. It 
     should give them the tools which are necessary to police this 
       A significant issue which was fixed during conference was 
     clarifying that in most situations community banks aren't 
     swap dealers or major swap participants. The definition of 
     swap dealer was adjusted in a couple of respects so that a 
     community bank which is hedging its interest rate risk on its 
     loan portfolio would not be viewed as a Swap Dealer. In 
     addition, we made it clear that a bank that originates a loan 
     with a customer and offers a swap in connection with that 
     loan shouldn't be viewed as a swap dealer. It was never the 
     intention of the Senate Agriculture Committee to catch 
     community banks in either situation. We worked very hard to 
     make sure that this understanding came through in revised 
     statutory language which was worked out during conference. 
     There were some concerns expressed about banks being caught 
     up as being highly leveraged financial entities under prong 
     (iii) of the major swap participant definition. This concern 
     was addressed by adding language clarifying that if the 
     financial entity had a capital requirement set by a federal 
     banking regulator that it wouldn't be included in the 
     definition under that prong. This particular prong of the 
     major swap participant provision was intended to catch 
     entities like the hedge fund LTCM and AIG's financial 
     products subsidiary, not community banks. We also clarified 
     in Section 716 that banks which are major swap participants 
     are not subject to the federal assistance bans. These changes 
     and clarifications should ensure that community banks, when 
     acting as banks, are not caught by the swap dealer or major 
     swap participant definitions.
       Section 716 and the ban on federal assistance to swap 
     entities is an incredibly important provision. It was agreed 
     by the administration, and accepted by the conference, that 
     under the revised Section 716, insured depository 
     institutions would be forced to ``push out'' the riskiest 
     swap activities into a separate affiliate. The swap dealer 
     activities which would have to be pushed out included: swaps 
     on equities, energy, agriculture, metal other than silver and 
     gold, non investment grade debt, uncleared credit default 
     swaps and other swaps that are not bank permissible 
     investments. We were assured by the administration that all 
     of the types of swaps enumerated above are not bank 
     permissible and will be subject to the push out. Further, it 
     is our understanding that no regulatory action, 
     interpretation or guidance will be issued or taken which 
     might turn such swaps into bank permissible investments or 
       It should also be noted that a mini-Volcker rule was 
     incorporated into Section 716 during the conference. Banks, 
     their affiliates and their bank holding companies would be 
     prohibited from engaging in proprietary trading in 
     derivatives. This provision would prohibit banks and bank 
     holding companies, or any affiliate, from proprietary trading 
     in swaps as well as other derivatives. This was an important 
     expansion and linking of the Lincoln Rule in Section 716 with 
     the Volcker Rule in Section 619 of Dodd-Frank.
       Section 716's effective date is 2 years from the effective 
     date of the title, with the possibility of a 1 year extension 
     by the appropriate Federal banking agency. It should be noted 
     that the appropriate federal banking agencies should be 
     looking at the affected banks and evaluating the appropriate 
     length of time which a bank should receive in connection with 
     its ``push out.'' Under the revised Section 716, banks do not 
     have a ``right'' to 24 month phase-in for the push out of the 
     impermissible swap activities. The appropriate federal 
     banking agencies should be evaluating the particular banks 
     and their circumstances under the statutory factors to 
     determine the appropriate time frame for the push out.
       The Senate Agriculture Committee bill revised and updated 
     several of the CEA definitions related to intermediaries such 
     as floor trader, floor broker, introducing broker, futures 
     commission merchant, commodity trading advisor, and commodity 
     pool operator as well as adding a statutory definition of the 
     term commodity pool. We note that the definition of futures 
     commission merchant is amended to include persons that are 
     registered as FCMs. This makes clear that such persons must 
     comply with the regulatory standards, including the capital 
     and customer funds protections that apply to FCMs. The Senate 
     Agriculture Committee wanted to ensure that all the 
     intermediary and other definitions were current and reflected 
     the activities and financial instruments which CFTC 
     registered and regulated entities would be advising on, 
     trading or holding, especially in light of Congress adding 
     swaps to the financial instruments over which the CFTC has 
     jurisdiction. We note that in addition to swaps, we added 
     other financial instruments such as security futures 
     products, leverage contracts, retail foreign exchange 
     contracts and retail commodity transactions which the CFTC 
     has jurisdiction over and which would require registration 
     where appropriate.
       With respect to commodity trading advisors, CTAs, commodity 
     pool operators, CPOs, and commodity pools, we wanted to 
     provide clarity regarding the activities and jurisdiction 
     over these entities. Under Section 749 we have provided 
     additional clarity regarding what it means to be ``primarily 
     engaged'' in the business of being a commodity trading 
     advisor and being a commodity pool. To the extent an entity 
     is ``primarily engaged'' in advising on swaps, such as 
     interest rate swaps, foreign exchange swaps or broad-based 
     security index swaps, then it would be required to register 
     as a commodity trading advisor with the CFTC. On the other 
     hand, to the extent an entity is primarily engaged in 
     advising on security-based swaps it would be required 
     register as an investment adviser with the SEC or the states. 
     We would note that under existing law the CEA and the 
     Investment Advisers Act have mirror provisions which exempts 
     from dual registration and regulation SEC registered IAs and 
     CFTC registered CTAs as long as they only provide very 
     limited advice related to futures and securities, 
     respectively. This policy is continued and expanded to the 
     extent it now covers advice related to swaps and security-
     based swaps.
       With respect to commodity pools, the SEC has long 
     recognized that commodity pools are not investment companies 
     which are subject to registration or regulation under the 
     Investment Company Act of 1940. Alpha Delta Fund No Action 
     Letter (pub avail. May 4, 1976); Peavey Commodity Futures 
     Fund I, II and III No action letter (pub avail. June 2, 
     1983)); Managed Futures Association No Action Letter (Pub 
     Avail. July 15, 1996). To be an ``investment company'' under 
     Section 3(a) of the Investment Company Act an entity has to 
     be primarily engaged in the business of investing, 
     reinvesting, or trading securities. In the matter of the 
     Tonopah Mining Company of Nevada, 26 S.E.C. 426 (July 22, 
     1947) and SEC v. National Presto Industries, Inc., 486 F.3d 
     305 (7th Cir. 2007). Commodity pools are primarily engaged in 
     the business of investing, reinvesting or trading in 
     commodity interests, not securities. For this reason, 
     commodity pools are not investment companies and are not 
     utilizing an exemption under the Investment Company Act. A 
     recent and well know example of commodity pools which the SEC 
     has recognized as not being investment companies, and not 
     being required to register under the Investment Company Act, 
     comes in the commodity based exchange traded funds (ETF) 
     world. While recent ETFs based on gold, silver, oil, natural 
     gas and other commodities have registered their securities 
     under the 1933 and 1934 Acts and listed them on national 
     securities exchanges for trading, these funds, which are 
     commodity pools which are operated by CFTC registered 
     commodity pool operators, are not registered as investment 
     companies under the Investment Company Act of 1940. See the 
     Investment Company Institute 2010 Fact Book, Chapter 3. We 
     have clarified that commodity interests include not only 
     contracts of sale of a commodity for future delivery and 
     options on such contracts but would also include swaps, 
     security futures products, leverage contracts, retail foreign 
     exchange contracts, retail commodity transactions, physical 
     commodities and any funds held in a margin account for 
     trading such instruments. I am pleased that

[[Page S5923]]

     the Conference Report includes these new provisions which 
     were in the bill passed out of the Senate Agriculture 
       I would also note the importance of Section 769 and Section 
     770. These sections amend the Investment Company Act of 1940 
     and the Investment Advisers Act of 1940 so that certain terms 
     in the CEA are now incorporated into both of the 1940 Acts, 
     which are administered by the SEC. We believed it was 
     appropriate to incorporate these important definitions from 
     the CEA into the two 1940 Acts as it relates to advice on 
     futures and swaps, such as interest rate swaps and foreign 
     exchange swaps and forwards, as well as what constitutes 
     being a commodity pool and being primarily engaged in the 
     business of investing in commodity interests as distinguished 
     from being an investment company which is primarily engaged 
     in the business of investing, reinvesting, holding, trading 
     securities. I am pleased that the Conference Report includes 
     these new updated definitions as it should help clarify 
     jurisdictional and registration requirements.
       Another extremely important issue which originated in the 
     Senate Agriculture Committee was imposing a fiduciary duty on 
     swap dealers when dealing with special entities, such as 
     municipalities, pension funds, endowments, and retirement 
     plans. The problems in this area, especially with respect to 
     municipalities and Jefferson County, Alabama in particular 
     are very well known. I would like to note that Senators 
     Harkin and Casey have been quite active in this area and 
     worked closely with me on this issue. While Senators Harkin, 
     Casey and I did not get everything which we were looking for, 
     we ended up with a very good product. First, there is a clear 
     fiduciary duty which swap dealers and major swap participants 
     must meet when acting as advisors to special entities. This 
     is a dramatic improvement over the House passed bill and 
     should help protect both tax payers and plan beneficiaries. 
     Further, we have expanded the business conduct standards 
     which swap dealers and major swap participants must follow 
     even when they are not acting as advisors to special 
     entities. I'd make a very important point, nothing in this 
     provision prohibits a swap dealer from entering into 
     transactions with special entities. Indeed, we believe it 
     will be quite common that swap dealers will both provide 
     advice and offer to enter into or enter into a swap with a 
     special entity. However, unlike the status quo, in this case, 
     the swap dealer would be subject to both the acting as 
     advisor and business conduct requirements under subsections 
     (h)(4) and (h)(5). These provisions will place tighter 
     requirements on swap entities that we believe will help to 
     prevent many of the abuses we have seen over the last few 
     years. Importantly, the CFTC and the SEC have the authority 
     to add to the statutory business conduct standards which swap 
     dealers and major swap participants must follow. We expect 
     the regulators to utilize this authority. Among other areas, 
     regulators should consider whether to impose business conduct 
     standards that would require swap dealers to further disclose 
     fees and compensation, ensure that swap dealers maintain 
     the confidentiality of hedging and portfolio information 
     provided by special entities, and prohibit swap dealers 
     from using information received from a special entity to 
     engage in trades that would take advantage of the special 
     entity's positions or strategies. These are very important 
     issues and should be addressed.
       Section 713 clarifies the authority and means for the CFTC 
     and SEC to facilitate portfolio margining of futures 
     positions and securities positions together, subject to 
     account-specific programs. The agencies are required to 
     consult with each other to ensure that such transactions and 
     accounts are subject to ``comparable requirements to the 
     extent practicable for similar products.'' The term 
     ``comparable'' in this provision does not mean ``identical.'' 
     Rather, the term is intended to recognize the legal and 
     operational differences of the regulatory regimes governing 
     futures and securities accounts.
       Title VII establishes a new process for the CFTC and SEC to 
     resolve the status of novel derivative products. In the past, 
     these types of novel and innovative products have gotten 
     caught up in protracted jurisdictional disputes between the 
     agencies, resulting in delays in bringing products to market 
     and placing U.S. firms and exchanges at a competitive 
     disadvantage to their overseas counterparts.
       In their Joint Harmonization Report from October 2009, the 
     two agencies recommended legislation to provide legal 
     certainty with respect to novel derivative product listings, 
     either by a legal determination about the nature of a product 
     or through the use of the agencies' respective exemptive 
     authorities. Title VII includes provisions in Sections 717 
     and 718 to implement these recommendations.
       It does so by establishing a process that requires public 
     accountability by ensuring that jurisdictional disputes are 
     resolved at the Commission rather than staff level, and 
     within a firm timeframe. Specifically, either agency can 
     request that the other one: 1) make a legal determination 
     whether a particular product is a security under SEC 
     jurisdiction or a futures contract or commodity option under 
     CFTC jurisdiction; or 2) grant an exemption with respect to 
     the product. An agency receiving such a request from the 
     other agency is to act on it within 120 days. Title VII also 
     provides for an expedited judicial review process for a legal 
     determination where the agency making the request disagrees 
     with the other's determination.
       Title VII also includes amendments to existing law to 
     ensure that if either agency grants an exemption, the product 
     will be subject to the other's jurisdiction, so there will be 
     no regulatory gaps. For example, the Commodity Exchange Act 
     is amended to clarify that CFTC has jurisdiction over options 
     on securities and security indexes that are exempted by the 
     SEC. And Section 741 grants the CFTC insider trading 
     enforcement authority over futures, options on futures, and 
     swaps, on a group or index of securities.
       We strongly urge the agencies to work together under these 
     new provisions to alleviate the ills that they themselves 
     have identified. The agencies should make liberal use of 
     their exemptive authorities to avoid spending taxpayer 
     resources on legal fights over whether these novel derivative 
     products are securities or futures, and to permit these 
     important new products to trade in either or both a CFTC- or 
     SEC-regulated environment.
       Section 721 includes a broad and expansive definition of 
     the term ``swap'' that is subject to the new regulatory 
     regime established in Title VII. It also provides the CFTC 
     with the authority to further define the term ``swap'' (and 
     various other new terms in Title VII) in order to include 
     transactions and entities that have been structured to evade 
     these important new legal requirements. The CFTC must not 
     allow market participants to ``game the system'' by labeling 
     or structuring transactions that are swaps as another type of 
     instrument and then claim the instrument to be outside the 
     scope of the legislation that Congress has enacted.
       Section 723 creates a ``Trade Execution Requirement'' in 
     new section 2(h)(8) of the Commodity Exchange Act (CEA). 
     Section 2(h)(8)(A) requires that swaps that are subject to 
     the mandatory clearing requirement under new CEA Section 
     2(h)(1) must be executed on either a designated contract 
     market or a swap execution facility. Section 2(h)(8)(B) 
     provides an exception to the Trade Execution Requirement if 
     the swap is subject to the commercial end-user exception to 
     the clearing requirement in CEA Section 2(h)(7), or if no 
     contract market or swap execution facility ``makes the swap 
     available to trade.'' This provision was included in the bill 
     as reported by the Senate Agriculture Committee and then in 
     the bill that was passed by the Senate.
       In interpreting the phrase ``makes the swap available to 
     trade,'' it is intended that the CFTC should take a practical 
     rather than a formal or legalistic approach. Thus, in 
     determining whether a swap execution facility ``makes the 
     swap available to trade,'' the CFTC should evaluate not just 
     whether the swap execution facility permits the swap to be 
     traded on the facility, or identifies the swap as a candidate 
     for trading on the facility, but also whether, as a practical 
     matter, it is in fact possible to trade the swap on the 
     facility. The CFTC could consider, for example, whether there 
     is a minimum amount of liquidity such that the swap can 
     actually be traded on the facility. The mere ``listing'' of 
     the swap by a swap execution facility, in and of itself, 
     without a minimum amount of liquidity to make trading 
     possible, should not be sufficient to trigger the Trade 
     Execution Requirement.
       Both Section 723 and Section 729 establish requirements 
     pertaining to the reporting of pre-enactment and post-
     enactment swaps to swap data repositories or the CFTC. They 
     do so in new Sections 2(h)(5) and 4r(a) of the Commodity 
     Exchange Act, respectively, which provide generally that 
     swaps must be reported pursuant to such rules or regulations 
     as the CFTC prescribes. These provisions should be 
     interpreted as complementary to one another and to assure 
     consistency between them. This is particularly true with 
     respect to issues such as the effective dates of these 
     reporting requirements, the applicability of these provisions 
     to cleared and/or uncleared swaps, and their applicability--
     or non-applicability--to swaps whose terms have expired at 
     the date of enactment.
       Section 724 creates a segregation and bankruptcy regime for 
     cleared swaps that is intended to parallel the regime that 
     currently exists for futures. Section 724 requires any person 
     holding customer positions in cleared swaps at a derivatives 
     clearing organization to be registered as an FCM with the 
     CFTC. Section 724 does not require, and there is no intention 
     to require, swap dealers, major swap participants, or end 
     users to register as FCMs with the CFTC to the extent that 
     such entities hold collateral or margin which has been put up 
     by a counterparty of theirs in connection with a swap 
     transaction. In amending both the Commodity Exchange Act 
     (CEA) and the Bankruptcy Code to clarify that cleared swaps 
     are ``commodity contracts,'' Section 724 makes explicit what 
     had been left implicit under the Commodity Futures 
     Modernization Act of 2000. Specifically, we have clarified 
     that: 1) title 11, Chapter 7, Subchapter IV of the United 
     States Bankruptcy Code applies to cleared swaps to the same 
     extent that it applies to futures; and 2) the CFTC has the 
     same authority under Section 20 of the CEA to interpret such 
     provisions of the Bankruptcy Code with respect to cleared 
     swaps as it has with respect to futures contracts.
       Section 731 prohibits a swap dealer or major swap 
     participant from permitting any associated person who is 
     subject to a statutory disqualification under the Commodity 
     Exchange Act (CEA) to effect or be involved in effecting 
     swaps on its behalf, if it knew or reasonably should have 
     known of the statutory disqualification. In order to 

[[Page S5924]]

     this statutory disqualification provision, the CFTC may 
     require such associated persons to register with the CFTC 
     under such terms, and subject to such exceptions, as the CFTC 
     deems appropriate.
       The term ``associated person of a swap dealer or major swap 
     participant'' is defined in Section 721 as a person who, 
     among other things, is involved in the ``solicitation'' or 
     ``acceptance'' of swaps. These terms would also include the 
     negotiation of swaps.
       Section 731 includes a new Section 4s(g) of the CEA to 
     impose requirements regarding the maintenance of daily 
     trading records on swap dealers and major swap participants. 
     To reflect advances in technology, CEA Section 4s(g) 
     expressly requires that these registrants maintain ``recorded 
     communications, including electronic mail, instant messages, 
     and recordings of telephone calls.'' Under current law, 
     Section 4g of the CEA governs the maintenance of daily 
     trading records by certain existing classes of CFTC 
     registrants, and is worded more generally and without 
     expressly mentioning the recorded communications enumerated 
     in CEA Section 4s(g). The enactment of this provision should 
     not be interpreted to mean or imply that the specifically-
     identified types of recorded communications that must be 
     maintained by swap dealers and major swap participants under 
     CEA Section 4s(g) would be beyond the authority of the CFTC 
     to require of other registrants by rule under Section 4g.
       Sections 733 and 735 establish a regime of core principles 
     to govern the operations of swap execution facilities and 
     designated contract markets, respectively. Certain of these 
     swap execution facility and designated contract market core 
     principles are identically worded. Given that swap execution 
     facilities will trade swaps exclusively, whereas designated 
     contract markets will be able to trade swaps or futures 
     contracts, we expect that the CFTC may interpret identically-
     worded core principles differently where they apply to 
     different types of instruments or for different types of 
     trading facilities or platforms.
       Section 737 amends Section 4a(a)(1) of the Commodity 
     Exchange Act (CEA) to authorize the CFTC to establish 
     position limits for ``swaps that perform or affect a 
     significant price discovery function with respect to 
     registered entities.'' Subsequent descriptions of the 
     significant price discovery function concept in Section 737, 
     though, refer to an impact on ``regulated markets'' or 
     ``regulated entities.'' The term ``registered entity'' is 
     specifically defined in the CEA, and clearly includes 
     designated contract markets and swap execution facilities. By 
     contrast, the terms ``regulated markets'' and ``regulated 
     entities'' are not defined or used anywhere else in the CEA. 
     This different terminology is not intended to suggest a 
     substantive difference, and it is expected that the CFTC may 
     interpret the terms ``regulated markets'' and ``regulated 
     entities'' to mean ``registered entities'' as defined in the 
     statute for purposes of position limits under Section 737.
       Section 737 also amends CEA Section 4a(a)(1) to authorize 
     the CFTC to establish position limits for ``swaps traded on 
     or subject to the rules of a designated contract market or a 
     swap execution facility, or swaps not traded on or subject to 
     the rules of a designated contract market or a swap execution 
     facility that performs a significant price discovery function 
     with respect to a registered entity.'' Later, Section 737 
     sets out additional provisions authorizing CFTC position 
     limits to reach swaps, but without utilizing this same 
     wording regarding swaps traded on or off designated contract 
     markets or swap execution facilities. The absence of this 
     wording is not intended to preclude the CFTC from applying 
     any of the position limit provisions in Section 737 in the 
     same manner with respect to DCM or SEF traded swaps as is 
     explicitly provided for in CEA Section 4a(a)(1).
       Finally, Section 737 amends CEA Section 4a(a)(4) to 
     authorize the CFTC to establish position limits on swaps that 
     perform a significant price discovery function with respect 
     to regulated markets, including price linkage situations 
     where a swap relies on the daily or final settlement price of 
     a contract traded on a regulated market based upon the same 
     underlying commodity. Section 737 also amends CEA Section 
     4a(a)(5) to provide that the CFTC shall establish position 
     limits on swaps that are ``economically equivalent'' to 
     futures or options traded on designated contract markets. It 
     is intended that this ``economically equivalent'' provision 
     reaches swaps that link to a settlement price of a contract 
     on a designated contract market, without the CFTC having to 
     first make a determination that the swaps perform a 
     significant price discovery function.
       Section 741, among other things, clarifies that the CFTC's 
     enforcement authority extends to accounts and pooled 
     investment vehicles that are offered for the purpose of 
     trading, or that trade, off-exchange contracts in foreign 
     currency involving retail customers. Thus, the CFTC may 
     bring an enforcement action for fraud in the offer and 
     sale of such managed or pooled foreign currency 
     investments or accounts. These provisions overrule an 
     adverse decision in the CFTC enforcement case of CFTC v. 
     White Pine Trust Corporation, 574 F.3d 1219 (9th Cir. 
     2009), which erected an inappropriate limitation on the 
     broad mandate that Congress has given the CFTC to protect 
     this country's retail customers from fraud.
       Section 742 includes several important provisions to 
     enhance the protections afforded to customers in retail 
     commodity transactions, and I would like to highlight three 
     of them. First, Section 742 clarifies the prohibition on off-
     exchange retail futures contracts that has been at the heart 
     of the Commodity Exchange Act (CEA) throughout its history. 
     In recent years, there have been instances of fraudsters 
     using what are known as ``rolling spot contracts'' with 
     retail customers in order to evade the CFTC's jurisdiction 
     over futures contracts. These contracts function just like 
     futures, but the court of appeals in the Zelener case (CFTC 
     v. Zelener, 373 F.3d 861 (7th Cir. 2004)), based on the 
     wording of the contract documents, held them to be spot 
     contracts outside of CFTC jurisdiction. The CFTC 
     Reauthorization Act of 2008, which was enacted as part of 
     that year's Farm Bill, clarified that such transactions in 
     foreign currency are subject to CFTC anti-fraud authority. It 
     left open the possibility, however, that such Zelener-type 
     contracts could still escape CFTC jurisdiction if used for 
     other commodities such as energy and metals.
       Section 742 corrects this by extending the Farm Bill's 
     ``Zelener fraud fix'' to retail off-exchange transactions in 
     all commodities. Further, a transaction with a retail 
     customer that meets the leverage and other requirements set 
     forth in Section 742 is subject not only to the anti-fraud 
     provisions of CEA Section 4b (which is the case for foreign 
     currency), but also to the on-exchange trading requirement of 
     CEA Section 4(a), ``as if'' the transaction was a futures 
     contract. As a result, such transactions are unlawful, and 
     may not be intermediated by any person, unless they are 
     conducted on or subject to the rules of a designated contract 
     market subject to the full array of regulatory requirements 
     applicable to on-exchange futures under the CEA. Retail off-
     exchange transactions in foreign currency will continue to be 
     covered by the ``Zelener fraud fix'' enacted in the Farm 
     Bill; further, cash or spot contracts, forward contracts, 
     securities, and certain banking products are excluded from 
     this provision in Section 742, just as they were excluded in 
     the Farm Bill.
       Second, Section 742 addresses the risk of regulatory 
     arbitrage with respect to retail foreign currency 
     transactions. Under the CEA, several types of regulated 
     entities can provide retail foreign currency trading 
     platforms--among them, broker-dealers, banks, futures 
     commission merchants, and the category of ``retail foreign 
     exchange dealers'' that was recognized by Congress in the 
     Farm Bill in 2008. Section 742 requires that the agencies 
     regulating these entities have comparable regulations in 
     place before their regulated entities are allowed to offer 
     retail foreign currency trading. This will ensure that all 
     domestic retail foreign currency trading is subject to 
     similar protections.
       Finally, Section 742 also addresses a situation where 
     domestic retail foreign currency firms were apparently moving 
     their activities offshore in order to avoid regulations 
     required by the National Futures Association. It removes 
     foreign financial institutions as an acceptable counterparty 
     for off-exchange retail foreign currency transactions under 
     section 2(c) of the CEA. Foreign financial institutions 
     seeking to offer them to retail customers within the United 
     States will now have to offer such contracts through one of 
     the other legal mechanisms available under the CEA for 
     accessing U.S. retail customers.
       Section 745 provides that in connection with the listing of 
     a swap for clearing by a derivatives clearing organization, 
     the CFTC shall determine, both the initial eligibility and 
     the continuing qualification of the DCO to clear the swap 
     under criteria determined by the CFTC, including the 
     financial integrity of the DCO. Thus, the CFTC has the 
     flexibility to impose terns or conditions that it determines 
     to be appropriate with regard to swaps that a DCO plans to 
     accept for clearing. No DCO may clear a swap absent a 
     determination by the CFTC that the DCO has proper risk 
     management processes in place and that the DCO's clearing 
     operation is in accordance with the Commodity Exchange Act 
     and the CFTC's regulations thereunder.
       Section 753 adds a new anti-manipulation provision to the 
     Commodity Exchange Act (CEA) addressing fraud-based 
     manipulation, including manipulation by false reporting. 
     Importantly, this new enforcement authority being provided to 
     the CFTC supplements, and does not supplant, its existing 
     anti-manipulation authority for other types of manipulative 
     conduct. Nor does it negate or undermine any of the case law 
     that has developed construing the CEA's existing anti-
     manipulation provisions.
       The good faith mistake provision in Section 753 is an 
     affirmative defense. The burden of proof is on the person 
     asserting the good faith mistake defense to show that he or 
     she did not know or act in reckless disregard of the fact 
     that the report was false, misleading, or inaccurate.
       Section 753 also re-formats CEA Section 6(c), which is 
     where the new anti-manipulation authority is placed, to make 
     it easier for courts and the public to use and understand. 
     Changes made to existing text as part of this re-formatting 
     were made to streamline or eliminate redundancies, not to 
     effect substantive changes to these provisions.
       Title VIII of the legislation provides enhanced authorities 
     and procedures for those clearing organizations and 
     activities of financial institutions that have been 
     designated as systemically important by a super-majority of 
     the new Financial Stability Oversight Council. Title VIII 

[[Page S5925]]

     the authority of the CFTC and SEC as primary regulators of 
     clearinghouses and clearing activities within their 
     jurisdiction. Title VIII further expands the CFTC's and SEC's 
     authorities in prescribing risk management standards and 
     other regulations to govern designated clearing entities, and 
     financial institutions engaged in designated activities. 
     Similarly, Title VIII preserves and expands the CFTC's and 
     SEC's examination and enforcement authorities with respect to 
     designated entities within their respective jurisdictions.
       Title VIII sets forth specific standards and procedures 
     that permit the Council, upon a supermajority vote of the 
     Council, and upon a determination that additional risk 
     management standards are necessary to prevent significant 
     risks to the stability of the financial system, to require 
     the CFTC or SEC to impose additional risk management 
     standards regarding designated financial market utilities or 
     financial institutions engaged in designated activities.
       Thus, the authorities granted in Title VIII are intended to 
     be both additive and complementary to the authorities granted 
     to the CFTC and SEC in Title VII and to those agencies' 
     already existing legal authorities. The authority provided in 
     Title VIII to the CFTC and SEC with respect to designated 
     clearing entities and financial institutions engaged in 
     designated activities would not and is not intended to 
     displace the CFTC's and SEC's regulatory regime that would 
     apply to these institutions or activities.
       Whereas Title VIII is specifically addressed to payment, 
     settlement, and clearing activities, Title I is addressed to 
     consolidated entity supervision of complex financial 
     institutions. Accordingly, to prevent coverage under two 
     separate regulatory schemes, clearing agencies and 
     derivatives clearing organizations are generally excepted 
     from Title I. Also excepted from Title I are national 
     exchanges, designated contract markets, swap execution 
     facilities and other enumerated entities.
       Title X of the legislation, which establishes a new Bureau 
     of Consumer Financial Protection, maintains the supervisory, 
     enforcement, rulemaking and other authorities of the CFTC 
     over the persons it regulates. The legislation expressly 
     prohibits the new Bureau from exercising any powers with 
     respect to any persons regulated by the CFTC, to the extent 
     that the actions of those persons are subject to the 
     jurisdiction of the CFTC. It is not intended that Title X 
     would lead to overlapping supervision of such persons by the 
     Bureau. In this respect, the legislation is fully consistent 
     with the Treasury Department's White Paper on Financial 
     Regulatory Reform, which proposed the creation of an agency 
     ``dedicated to protecting consumers in the financial products 
     and services markets, except for investment products and 
     services already regulated by the SEC or CFTC.'' (See 
     Treasury White Paper at 55-56 (June 17, 2009) (emphasis 

  Mr. DURBIN. Mr. President, I rise to speak about my interchange fee 
amendment that was incorporated into the Dodd-Frank Wall Street Reform 
and Consumer Protection Act. There are some important aspects of the 
amendment that I want to clarify for the record.
  First, it is important to note that while this amendment will bring 
much-needed reform to the credit card and debit card industries, in no 
way should enactment of this amendment be construed as preempting other 
crucial steps that must be taken to bring competition and fairness to 
those industries. For example, a key component of the Senate-passed 
version of my amendment was a provision that would prohibit payment 
card networks from blocking merchants from offering a discount for 
customers who use a competing card network. This provision was 
unfortunately left out of the final conference report, but the need for 
this provision remains undiminished. It is blatantly anticompetitive 
for one company to prohibit its customers from offering a discounted 
price for a competitor's product, and I will continue to pursue steps 
to end this practice.
  Additionally, in no way should my amendment be construed as 
preempting or superseding scrutiny of the credit card and debit card 
industries under the antitrust laws. Section 6 of the Dodd-Frank act 
conference report contains an antitrust savings clause which provides 
that nothing in the act shall be construed to modify, impair, or 
supersede the operation of any of the antitrust laws. I want to make 
clear that nothing in my amendment is intended to modify, impair, or 
supersede the operation of any of the antitrust laws, nor should my 
amendment be construed as having that effect. Vigorous antitrust 
scrutiny over the credit and debit card industries will continue to be 
needed after enactment of the Dodd-Frank act, particularly in light of 
the highly concentrated nature of those industries.
  With respect to the new subsection 920(a) of the Electronic Fund 
Transfer Act that would be created by my amendment, there are a few 
issues that should be clarified. The core provisions of subsection (a) 
are its grant of regulatory authority to the Federal Reserve Board over 
debit interchange transaction fees, and its requirement that an 
interchange transaction fee amount charged or received with respect to 
an electronic debit transaction be reasonable and proportional to the 
cost incurred by the issuer with respect to the transaction. Paragraph 
(a)(4) makes clear that the cost to be considered by the Board in 
conducting its reasonable and proportional analysis is the incremental 
cost incurred by the issuer for its role in the authorization, 
clearance, or settlement of a particular electronic debit transaction, 
as opposed to other costs incurred by an issuer which are not specific 
to the authorization, clearance, or settlement of a particular 
electronic debit transaction.
  Paragraph (5) of subsection (a) provides that the Federal Reserve 
Board may allow for an adjustment of an interchange transaction fee 
amount received by a particular issuer if the adjustment is reasonably 
necessary to make allowance for the fraud prevention costs incurred by 
the issuer seeking the adjustment in relation to its electronic debit 
transactions, provided that the issuer has demonstrated compliance with 
fraud-related standards established by the Board. The standards 
established by the Board will ensure that any adjustments to the fee 
shall be limited to reasonably necessary costs and shall take into 
account fraud-related reimbursements that the issuer receives from 
consumers, merchants, or networks. The standards shall also require 
issuers that want an adjustment to their interchange fees to take 
effective steps to reduce the occurrence of and costs from fraud in 
electronic debit transactions, including through the development of 
cost-effective fraud prevention technology.
  It should be noted that any fraud prevention adjustment to the fee 
amount would occur after the base calculation of the reasonable and 
proportional interchange fee amount takes place, and fraud prevention 
costs would not be considered as part of the incremental issuer costs 
upon which the reasonable and proportional fee amount is based. 
Further, any fraud prevention cost adjustment would be made on an 
issuer-specific basis, as each issuer must individually demonstrate 
that it complies with the standards established by the Board, and as 
the adjustment would be limited to what is reasonably necessary to make 
allowance for fraud prevention costs incurred by that particular 
issuer. The fraud prevention adjustment provision in paragraph (a)(5) 
is intended to apply to all electronic debit transactions, whether 
authorization is based on signature, PIN or other means.
  Paragraph (6) of subsection (a) exempts debit card issuers with 
assets of less than $10 billion from interchange fee regulation. This 
paragraph makes clear that for purposes of this exemption, the term 
``issuer'' is limited to the person holding the asset account which is 
debited, and thus does not count the assets of any agents of the 
issuer. However, the affiliates of an issuer are counted for purposes 
of the $10 billion exemption threshold, so if an issuer together with 
its affiliates has assets of greater than $10 billion, then the issuer 
does not fall within the exemption.
  It should be noted that the intent of my amendment is not to diminish 
competition in the debit issuance market. I will be watching closely to 
ensure that the giant payment card networks Visa and MasterCard do not 
collude with one another or with large financial institutions to take 
steps to purposefully disadvantage small issuers in response to 
enactment of this amendment.
  Paragraph (7) of subsection (a) exempts from interchange fee 
regulation electronic debit transactions involving debit cards or 
prepaid cards that are provided to persons as part of a federal, state 
or local government-administered payment program in which the person 
uses the card to debit assets provided under the program. The Federal 
Reserve Board will issue regulations to implement this provision, but 
it is important to note that this exemption is only intended to apply 

[[Page S5926]]

cards which can be used to transfer or debit assets that are provided 
pursuant to the government-administered program. The exemption is not 
intended to apply to multi-purpose cards that mingle the assets 
provided pursuant to the government-administered program with other 
assets, nor is it intended to apply to cards that can be used to debit 
assets placed into an account by entities that are not participants in 
the government-administered program.
  The amendment would also create subsection 920(b) of the Electronic 
Fund Transfer Act, which provides several restrictions on payment card 
networks. Paragraphs (1), (2) and (3) of 920(b) are intended only to 
serve as restrictions on payment card networks to prohibit them from 
engaging in certain anticompetitive practices. These provisions are not 
intended to preclude those who accept cards from engaging in any 
discounting or other practices, nor should they be construed to 
preclude contractual arrangements that deal with matters not covered by 
these provisions. Further, nothing in these provisions should be 
construed to mean that merchants can only provide a discount that is 
exactly specified in the amendment. The provisions also should not be 
read to confer any congressional blessing or approval of any other 
particular contractual restrictions that payment card networks may 
place on those who accept cards as payment. All these provisions say is 
that Federal law now blocks payment card networks from engaging in 
certain specific enumerated anti-competitive practices, and the 
provisions describe precisely the boundaries over which payment card 
networks cannot cross with respect to these specific practices.
  Paragraph (b)(1) directs the Federal Reserve Board to prescribe 
regulations providing that issuers and card networks shall not restrict 
the number of networks on which an electronic debit transaction may be 
processed to just one network, or to multiple networks that are all 
affiliated with each other. It further directs the Board to issue 
regulations providing that issuers and card networks shall not restrict 
a person who accepts debit cards from directing the routing of 
electronic debit transactions for processing over any network that may 
process the transactions. This paragraph is intended to enable each and 
every electronic debit transaction--no matter whether that transaction 
is authorized by a signature, PIN, or otherwise--to be run over at 
least two unaffiliated networks, and the Board's regulations should 
ensure that networks or issuers do not try to evade the intent of this 
amendment by having cards that may run on only two unaffiliated 
networks where one of those networks is limited and cannot be used for 
many types of transactions.
  Paragraph (b)(2) provides that a payment card network shall not 
inhibit the ability of any person to provide a discount or in-kind 
incentive for payment by the use of a particular form of payment--cash, 
checks, debit cards or credit cards--provided that discounts for debit 
cards and credit cards do not differentiate on the basis of the issuer 
or the card network, and provided that the discount is offered in a way 
that complies with applicable Federal and State laws. This paragraph is 
in no way intended to preclude the use by merchants of any other types 
of discounts. It just makes clear that Federal law prohibits payment 
card networks from inhibiting the offering of discounts which are for a 
form of payment--for example, a 1-percent discount for payment by debit 
card. This paragraph also provides that a network may not penalize a 
person for the way that the person offers or discloses a discount to 
customers, which will end the current practice whereby payment card 
networks have regularly sought to penalize merchants for providing 
cash, check or debit discounts that are fully in compliance with 
applicable Federal and State laws.
  Paragraph (b)(3) provides that a payment card network shall not 
inhibit the ability of any person to set a minimum dollar value for 
acceptance of credit cards, provided that the minimum does not 
differentiate between issuers or card networks, and provided that the 
minimum does not exceed $10. This paragraph authorizes the Board to 
increase this dollar amount by regulation. The paragraph also provides 
that card networks shall not inhibit the ability of a Federal agency or 
an institution of higher education to set a maximum dollar value for 
acceptance of credit cards, provided that the maximum does not 
differentiate between issuers or card networks. As with the discounts, 
this provision is not intended to preclude merchants, agencies or 
higher education institutions from setting other types of minimums or 
maximums by card or amount. It simply makes clear that payment card 
networks must at least allow for the minimums and maximums described in 
the provision.
  Paragraph (b)(4) contains a rule of construction providing that 
nothing in this subsection shall be construed to authorize any person 
to discriminate between debit cards within a card network or to 
discriminate between credit cards within a card network on the basis of 
the issuer that issued the card. The intent of this rule of 
construction is to make clear that nothing in this subsection should be 
cited by any person as justification for the violation of contractual 
agreements not to engage in the forms of discrimination cited in this 
paragraph. This provision does not, however, prohibit such 
discrimination as a matter of federal law, nor does it make any 
statement regarding the legality of such discrimination. In addition, 
this provision makes no statement as to whether a payment card 
network's contractual rule preventing such discrimination would be 
legal under the antitrust laws.
  Finally, it should be noted that the payment card networks as defined 
in the amendment are entities such as Visa, MasterCard, Discover, and 
American Express that directly, or through licensed members, processors 
or agents, provide the proprietary services, infrastructure and 
software that route information to conduct credit and debit card 
transaction authorization, clearance and settlement. The amendment does 
not intend, for example, to define ATM operators or acquiring banks as 
payment card networks unless those entities also operate card networks 
as do Visa, MasterCard, Discover and American Express.
  Overall, my amendment contains much needed reforms that will help 
increase fairness, transparency and competition in the debit card and 
credit card industries. More work remains to be done along these lines, 
but this amendment represents an important first step, and I thank my 
colleagues who have supported this effort.
  Mr. KOHL. Mr. President, I rise to speak on the Wall Street Reform 
and Consumer Protection Act which the Senate will pass today. After 2 
years of work, the reckless practices of Wall Street firms that 
resulted in terrible losses for people in Wisconsin and across the 
nation will finally be ended.
  These events showed us that maintaining the current regulatory system 
is not an acceptable option. Wall Street needs accountability and 
transparency to avoid future financial meltdowns. Congress has the duty 
to ensure that this kind of failure never happens again. The Wall 
Street Reform and Consumer Protection Act takes vital steps to end 
``too big to fail,'' bring unregulated shadow markets into the light, 
and make our financial system work better for everyone.
  This bill has been thoroughly deliberated in both the House and the 
Senate. The Banking Committee held more than 80 hearings since 2008 on 
the financial crisis, addressing its causes, grave impacts and 
potential remedies. These hearings explored all of the elements of this 
legislation in detail, and also looked at the specific regulatory 
failures that contributed to the crisis.
  The information gathered at these hearings laid down the foundation 
for the current bill. The bill was carefully debated and deliberated 
while on the Senate floor for 3 weeks--almost as long as the debate on 
health care reform.
  After the bill passed in the House and the Senate it was then 
negotiated by the Conference Committee. I was pleased with the 
Conference Committee's ability to address Members' concerns in both 
Chambers. The conference lasted 2 weeks and was televised and open to 
the public for viewing. This all brought welcome transparency to the 
legislative process.
  Throughout the consideration of financial reform, I met with people, 
banks and businesses in Wisconsin to better understand their needs so 
that our businesses and families can be protected from future 
recklessness. I have

[[Page S5927]]

worked hard to make sure that this bill protects Main Street and its 
businesses by focusing on Wall Street--the source of this crisis.
  I am proud to say that we now have a bill that will change our 
regulatory system in a way that will prevent and mitigate future 
crises. The bill will ensure that a Federal bailout will never again be 
an option for irresponsible businesses. The bill creates a council of 
regulators to monitor the economy for systemic threats. It will 
institute new regulations on hedge funds and over-the-counter 
derivatives and create a Bureau of Consumer Financial Protection that 
will oversee mortgage, credit cards and other credit products.
  Consumers will now have a single entity to report their concerns 
about abusive financial practices, allowing regulators to address these 
issues in a timelier manner--before more consumers are harmed. The bill 
improves access to credit, increases protections and expands financial 
education programs enabling consumers to make smart financial decisions 
and reducing widespread predatory practices
  In addition to providing consumers with adequate protections against 
fraud and predatory practices, I also believe that consumers need 
affordable alternatives to predatory lending products like pay day 
loans. Senator Daniel Akaka shares this belief which is why we worked 
together to draft title XII of this bill.
  Title XII will help to improve the lives of the millions of low- and 
moderate-income households in America that do not have access to 
mainstream financial institutions by providing grants to community 
development financial institutions so that they can give small dollar 
loans at affordable terms to people who are currently limited to 
riskier choices like payday loans. This grant making program will 
dramatically help to increase the number of small dollar loan options 
to consumers that need quick access to money so that they can pay for 
emergency medical costs, car repairs and other items they need to 
maintain their lives. This legislation is modeled in part after the 
FDIC's Small Dollar Loan Pilot Program.
  As chairman of the Judiciary Subcommittee on Antitrust, I am pleased 
to see that this bill will preserve the ability of the Federal 
antitrust agencies to protect competition and American consumers in the 
financial services industries. The legislation includes a broad 
antitrust savings clause that makes clear that nothing in the act will 
modify, impair or supersede the operation of any of the antitrust laws. 
It also includes more specific antitrust savings clauses in key 
provisions, further ensuring the continued ability of the antitrust 
agencies to fully enforce the relevant laws in these critical sectors 
in our economy.In addition to strengthening the oversight of mergers 
and acquisitions involving financial services firms, the bill 
specifically maintains the ability of the antitrust agencies to perform 
a thorough competition review of the transactions between these firms.
  This robust merger review authority ensures that the Federal 
antitrust agencies can continue to play their key role in protecting 
competition and ensuring consumers have choices for financial services 
and products at competitive rates and prices. Competition is the 
cornerstone of our Nation's economy, and the antitrust laws ensure 
strong competitive markets that make our economy strong and protect 
consumers. This bill will ensure that the antitrust laws retain their 
critical role in the financial services industry.
  This bill is another step in a long process of financial overhaul. 
The Wall Street Reform and Consumer Protection Act provides regulators 
with flexibility to implement a number of new rules. They will have to 
make decisions on issues ranging from determining fair charges on debit 
card swipe fees to deciding when a risky firm should be taken over. We 
need to make sure that our regulators have the tools and resources they 
need to get the job done right. As a member of the Banking Committee, I 
am going to keep a watchful eye on the regulators to make sure they are 
given adequate resources and oversight to do the job that they have 
been charged with.
  Clearly we would not have this bill without the hard work and effort 
of Senator Chris Dodd. It has been an honor to work with him and I hope 
he is as proud of this great accomplishment as I am.
  Finally I would like to take a moment to recognize the staff that 
worked so hard on this bill. I would like to acknowledge the staff of 
the Banking Committee for all of their exceptional work: including 
Levon Bagramian, Julie Chon, Brian Filipowich, Amy Friend, Catherine 
Galicia, Lynsey Graham Rea, Matthew Green, Marc Jarsulic, Mark 
Jickling, Deborah Katz, Jonathan Miller, Misha Mintz-Roth, Dean 
Shahinian, Ed Silverman, and Charles Yi.
  I also express my appreciation for all of the work done by the 
Legislative Assistants of the Banking Committee Members including Laura 
Swanson, Kara Stein, Jonah Crane, Linda Jeng, Ellen Chube, Michael 
Passante, Lee Drutman, Graham Steele, Alison O'Donnell, Hilary Swab, 
Harry Stein, Karolina Arias, Nathan Steinwald, Andy Green, Brian Appel, 
and Matt Pippin.
  Mr. DODD. Mr. President, I would like to clarify the intent behind 
one of the provisions in the conference report to accompany the 
financial reform bill, H.R. 4173, the Dodd-Frank Wall Street Reform and 
Consumer Protection Act of 2010. Section 204(d) contemplates that the 
FDIC, as receiver, may take a lien on assets of a covered financial 
company or a covered subsidiary. With respect to assets of a covered 
subsidiary that is an insurance company or a direct or indirect 
subsidiary of an insurance company, I believe that the FDIC should 
exercise such authority cautiously to avoid weakening the insurance 
company and thereby undermining policyholder protection. Indeed, any 
lien taken on the assets of a covered subsidiary that is an insurance 
company or a direct or indirect subsidiary of an insurance company must 
avoid weakening or undermining policyholder protection. As a result, 
the FDIC should normally not take a lien on the assets of such a 
covered subsidiary except where the FDIC sells the covered subsidiary 
to a third party, provides financing in connection with the sale, and 
takes a lien on the assets of the covered subsidiary to secure the 
third party's repayment obligation to the FDIC. I understand that the 
FDIC intends to promulgate regulations consistent with this view.
  Mr. President, I would also like to clarify the intent behind another 
of the provisions in the conference report to accompany the financial 
reform bill, H.R. 4173, the Dodd-Frank Wall Street Reform and Consumer 
Protection Act of 2010. Section 1075 of the bill amends the Electronic 
Fund Transfer Act to create a new section 920 regarding interchange 
fees. This is a very complicated subject involving many different 
stakeholders, including payment networks, issuing banks, acquiring 
banks, merchants, and, of course, consumers. Section 1075 therefore is 
also complicated, and I would like to make a clarification with regard 
to that section.
  Since interchange revenues are a major source of paying for the 
administrative costs of prepaid cards used in connection with health 
care and employee benefits programs such as FSAs, HSAs, HRAs, and 
qualified transportation accounts--programs which are widely used by 
both public and private sector employers and which are more expensive 
to operate given substantiation and other regulatory requirements--we 
do not wish to interfere with those arrangements in a way that could 
lead to higher fees being imposed by administrators to make up for lost 
revenue. That could directly raise health care costs, which would hurt 
consumers and which, of course, is not at all what we wish to do. 
Hence, we intend that prepaid cards associated with these types of 
programs would be exempted within the language of section 
920(a)(7)(A)(ii)(II) as well as from the prohibition on use of 
exclusive networks under section 920(b)(1)(A).
  Mr. President, I want to clarify a provision of the conference report 
of the Dodd-Frank Wall Street Reform and Consumer Protection Act, H.R. 
4173. Section 1012 sets forth the executive and administrative powers 
of the Consumer Financial Protection Bureau, CFPB, and section 
1012(c)(1)--Coordination with the Board of Governors--provides that 
``Notwithstanding any other provision of law applicable to the 
supervision or examination of persons with respect to Federal

[[Page S5928]]

consumer financial laws, the Board of Governors may delegate to the 
Bureau the authorities to examine persons subject to the jurisdiction 
of the Board of Governors for compliance with the Federal consumer 
financial laws.'' This provision is not intended to override section 
1026, which will continue to define the Bureau's examination and 
enforcement authority over insured depository institutions and insured 
credit unions with assets of less than $10 billion. The conferees 
expect that the board will not delegate to the Bureau its authority to 
examine insured depository institutions with assets of less than $10 
  Throughout the development of and debate on the Consumer Financial 
Protection Bureau, CFPB, I have insisted that the legislation meet 
three requirements--independent rule writing, independent examination 
and enforcement authority, and independent funding for the CFPB. The 
CFPB, as established by the conference report, meets each of those 
requirements. I want to speak for a moment about section 1017, which 
establishes the independent funding mechanism for the CFPB.
  The conference report requires the Federal Reserve System to 
automatically fund the CFPB based on the total operating expenses of 
the system, using 2009 as the baseline. This will ensure that the CFPB 
has the resources it needs to perform its functions without subjecting 
it to annual congressional appropriations. The failure of the Congress 
to provide the Office of Federal Housing Enterprises Oversight, OFHEO, 
with a steady stream of independent funding outside the appropriations 
process led to repeated interference with the operations of that 
regulator. Even when there was not explicit interference, the threat of 
congressional interference could very well have served to circumscribe 
the actions OFHEO was willing to take. We did not want to repeat that 
mistake in this legislation.
  In addition, because many of the employees of the CFPB will come from 
existing financial regulators, the conferees take the view that it is 
important that the new entity have the resources to keep these high 
quality staff and to attract new equally qualified staff, and to 
provide them with the support that they need to operate effectively. To 
that end, the conferees adopted the employment cost index for total 
compensation of State and Federal employees, ECI, as the index by which 
the funding baseline will be adjusted in the future. This index has 
generally risen faster than the CPI, which was the index used in the 
Senate bill. However, the ECI has typically risen at a more gradual 
rate than the average operating costs of the banking regulators, which 
was the index proposed by the House conferees.
  In the end, the conferees agreed to use the ECI and provide for a 
contingent authorization of appropriations of $200 million per year 
through fiscal year 2014. In order to trigger this authorization, the 
CFPB Director would have to report to the Appropriations Committees 
that the CFPB's formula funding is not sufficient.
  Section 1085 of the legislation adds the Consumer Financial 
Protection Bureau, CFPB, to the list of agencies authorized to enforce 
the Equal Credit Opportunity Act, ECOA--15 U.S.C. Sec. 1691c(a)(9). The 
legislation also amends section 706(g)--15 U.S.C. Sec. 1691e(g)--to 
require the CFPB to refer a matter to the Attorney General whenever the 
CFPB has reason to believe that 1 or more creditors has engaged in a 
``pattern or practice of discouraging or denying applications for 
credit'' in violation of section 701, 15 U.S.C. Sec. 1691(a). The 
general grant of civil litigation authority to the CFPB, in section 
1054(a), should not be construed to override, in any way, the CFPB's 
referral obligations under the ECOA.
  The requirement in section 706(g) of the ECOA that the CFPB refer a 
matter involving a pattern-or-practice violation of section 701, rather 
than first filing its own pattern-or-practice action, furthers the 
legislation's purpose of reducing fragmentation in consumer protection 
and fair lending enforcement under the ECOA. The Attorney General, who 
currently has authority under section 706(g) to file those pattern-or-
practice ECOA actions in court on behalf of the government, receives 
such pattern-or-practice referrals from other agencies with ECOA 
enforcement responsibilities and will continue to do so under the 
legislation. By subjecting the CFPB to the same referral requirement, 
the legislation intends to avoid creating fragmentation in this 
enforcement system under the ECOA where none currently exists.
  Title XIV creates a strong, new set of underwriting requirements for 
residential mortgage loans. An important part of this new regime is the 
creation of a safe harbor for certain loans made according to the 
standards set out in the bill, and which will be detailed further in 
forthcoming regulations. Loans that meet this standard, called 
``qualified mortgages,'' will have the benefit of a presumption that 
they are affordable to the borrowers.
  Section 1411 explains the basis on which the regulator must establish 
the standards lenders will use to determine the ability of borrowers to 
repay their mortgages. Section 1412 provides that lenders that make 
loans according to these standards would enjoy the rebuttable 
presumption of the safe harbor for qualified mortgages established by 
this section. These standards include the need to document a borrower's 
income, among others. However, certain refinance loans, such as VA-
guaranteed mortgages refinanced under the VA Interest Rate Reduction 
Loan Program or the FHA streamlined refinance program, which are rate-
term refinance loans and are not cash-out refinances, may be made 
without fully reunderwriting the borrower, subject to certain 
protections laid out in the legislation, while still remaining 
qualified mortgages.
  It is the conferees' intent that the Federal Reserve Board and the 
CFPB use their rulemaking authority under the enumerated consumer 
statutes and this legislation to extend this same benefit for 
conventional streamlined refinance programs where the party making the 
new loan already owns the credit risk. This will enable current 
homeowners to take advantage of current low interest rates to refinance 
their mortgages.
  There are a number of provisions in title XIV for which there is not 
a specified effective date other than what is provided in section 
1400(c). It is the intention of the conferees that provisions in title 
XIV that do not require regulations become effective no later than 18 
months after the designated transfer date for the CFPB, as required by 
section 1400(c). However, the conferees encourage the Federal Reserve 
Board and the CFPB to act as expeditiously as possible to promulgate 
regulations so that the provisions of title XIV are put into effect 
  I would like to clarify that the conferees consider any program or 
initiative that was announced before June 25 to have been initiated for 
the purposes of section 1302 of the conference report. I also want to 
make clear that the conferees do not intend for section 1302 to prevent 
the Treasury Department from adjusting available resources that remain 
after the adoption of the conference report among such existing 
programs, based on effectiveness.
  Mr. President, I also wish to explain some of the securities-related 
changes that emerged from the conference committee in the conference 
  The report amends section 408 to eliminate the blanket exemption for 
private equity funds and replace it with an exemption for private fund 
advisers with less than $150 million under management. The amendment 
also requires the SEC in its rulemaking to impose registration and 
examination procedures for such funds that reflect the level of 
systemic risk posed by midsized private funds.
  Section 913 has been amended to combine the principle of conducting a 
study on the standard of care to investors in the Senate bill with a 
grant of additional authority to the SEC to act, such as is contained 
in the House-passed bill. The section requires the SEC to conduct a 
study prior to taking action or conducting rulemaking in this area. The 
study will include a review of the effectiveness of existing legal or 
regulatory standards of care and whether there are regulatory gaps, 
shortcomings or overlaps in legal or regulatory standards. Even if 
there is an overlap or a gap, the Commission should not act unless 
eliminating the overlap or filling a gap would improve investor 
protection and is in the public interest. The study would require a 
review of the effectiveness, frequency,

[[Page S5929]]

and duration of the regulatory examinations of brokers, dealers, and 
investment advisers. In this review, the paramount issue is 
effectiveness. If regulatory examinations are frequent or lengthy but 
fail to identify significant misconduct--for example, examinations of 
Bernard L. Madoff Investment Securities, LLC--they waste resources and 
create an illusion of effective regulatory oversight that misleads the 
public. The SEC, in studying potential impacts that would result from 
changes to the regulation or standard of care, should seek to preserve 
consumer access to products and services, including access for persons 
in rural locations. In assessing the potential costs and benefits, the 
SEC should take into account the net costs or the difference between 
additional costs and additional benefits. For example, it should 
consider not only higher transaction or advisory charges or fees but 
also the return on investment if an investor receives better 
recommendations that result in higher profits through paying higher 
fees. After reporting to Congress, the SEC is required to consider the 
findings, conclusions, and recommendations of its study.
  New section 914 requires the SEC to study the need for enhanced 
examination and enforcement ``resources.'' The study of resources 
should not be limited to financial resources but should consider human 
resources also. Human resources involves whether there is a need for 
enhanced expertise, competence, and motivation to conduct examinations 
that satisfactorily identify problems or misconduct in the regulated 
entity. For example, if examinations fail to identify misconduct due to 
insufficient staff expertise, competence, or motivation, the study 
should conclude that there is a need for more effective staff or better 
management rather than merely more financial resources devoted to 
hiring additional staff of the same caliber.
  New section 919D creates the SEC Ombudsman under the Office of the 
Investor Advocate. The Ombudsman can act as a liaison between the 
Commission and any retail investor in resolving problems that retail 
investors may have with the Commission or with self-regulatory 
organizations and to review and make recommendations regarding policies 
and procedures to encourage persons to present questions to the 
Investor Advocate regarding compliance with the securities laws. This 
list of duties in subsection (8)(B) is not intended to be an exhaustive 
list. For example, if the Investor Advocate assigns the Ombudsman 
duties to act as a liaison with persons who have problems in dealing 
with the Commission resulting from the regulatory activities of the 
Commission, this would not be prohibited by this legislation.

  Title IX, subtitle B creates many new powers for the SEC. The SEC is 
expected to use these powers responsibly to better protect investors.
  Section 922 has been amended to eliminate the right of a 
whistleblower to appeal the amount of an award. While the whistleblower 
cannot appeal the SEC's monetary award determination, this provision is 
intended to limit the SEC's administrative burden and not to encourage 
making small awards. The Congress intends that the SEC make awards that 
are sufficiently robust to motivate potential whistleblowers to share 
their information and to overcome the fear of risk of the loss of their 
positions. Unless the whistleblowers come forward, the Federal 
Government will not know about the frauds and misconduct.
  In section 939B, the Report eliminated an exception so that credit 
rating agencies will be subject to regulation FD. Under this change, 
issuers would be required to disclose financial information to the 
public when they give it to rating agencies.
  In section 939F, the report requires the SEC to study the credit 
rating process for structured finance products and the conflicts of 
interest associated with the issuer-pay and the subscriber-pay models; 
the feasibility of establishing a system in which a public or private 
utility or a self-regulatory organization assigns nationally recognized 
statistical rating organizations to determine the credit ratings of 
structured finance products. The report directs the SEC to implement 
the system for assigning credit ratings that was in the base text 
unless it determines that an alternative system would better serve the 
public interest and the protection of investors.
  The report limits the exemption from risk retention requirements for 
qualified residential mortgages, by specifying that the definition of 
``qualified residential mortgage'' may be no broader than the 
definition of ``qualified mortgage'' contained in section 1412 of the 
report, which amends section 129C of the Truth in Lending Act. The 
report contains the following technical errors: the reference to 
``section 129C(c)(2)'' in subsection (e)(4)(C) of the new section 15G 
of the Securities and Exchange Act, created by section 941 of the 
report should read ``section 129C(b)(2).'' In addition, the references 
to ``subsection'' in paragraphs (e)(4)(A) and (e)(5) of the newly 
created section 15G should read ``section.'' We intend to correct these 
in future legislation.
  The report amended the say on pay provision in section 951 by adding 
a shareholder vote on how frequently the compare should give 
shareholders a ``say on pay'' vote. The shareholders will vote to have 
it every 1, 2, or 3 years, and the issuer must allow them to have this 
choice at least every 6 years. Also in section 951, the report required 
issuers to give shareholders an advisory vote on any agreements, or 
golden parachutes, that they make with their executive officers 
regarding compensation the executives would receive upon completion of 
an acquisition, merger, or sale of the company.
  The report required Federal financial regulators to jointly write 
rules requiring financial institutions such as banks, investment 
advisers, and broker-dealers to disclose the structures of their 
incentive-based compensation arrangements, to determine whether such 
structures provide excessive compensation or could lead to material 
losses at the financial institution and prohibiting types of incentive-
based payment arrangements that encourage inappropriate risks.
  In section 952, the report exempted controlled companies, limited 
partnerships, and certain other entities from requirements for an 
independent compensation committee.
  Section 962 provides for triennial reports on personnel management. 
One item to be studied involves Commission actions regarding employees 
who have failed to perform their duties, an issue that members raised 
during the Banking Committee's hearing entitled ``Oversight of the 
SEC's Failure to Identify the Bernard L. Madoff Ponzi Scheme and How to 
Improve SEC Performance,'' as well as circumstances under which the 
Commission has issued to employees a notice of termination. The GAO is 
directed to study how the Commission deals with employees who fail to 
perform their duties as well as its fairness when they issue a notice 
of termination. In the latter situation, they should consider specific 
cases and circumstances, while preserving employee privacy. The SEC is 
expected to cooperate in making data available to the GAO to perform 
its studies.
  In section 967, the report directs the SEC to hire an independent 
consultant with expertise in organizational restructuring and the 
capital markets to examine the SEC's internal operations, structure, 
funding, relationship with self-regulatory organizations and other 
entities and make recommendations. During the conference, some 
conferees expressed concern about objectivity of a study undertaken by 
the SEC itself. We are confident that the SEC will allow the 
``independent consultant'' to work without censorship or inappropriate 
influence and the final product will be objective and accurate.
  The report also added section 968 which directs the GAO to study the 
``revolving door'' at the SEC. The GAO will review the number of 
employees who leave the SEC to work for financial institutions and 
conflicts related to this situation.
  The report removed the Senate provision on majority voting in 
subtitle G which required a nominee for director who does not receive 
the majority of shareholder votes in uncontested elections to resign 
unless the remaining directors unanimously voted that it was in the 
best interest of the company and shareholders not to accept the 
  The report added the authority for the SEC to exempt an issuer or 
class of issuers from proxy access rules written under section 971 
after taking into account the burden on small issuers.
  In section 975, the report added a requirement that the MSRB rules 

[[Page S5930]]

municipal advisors to observe a fiduciary duty to the municipal 
entities they advise.
  In section 975, the report changed the requirement that a majority of 
the board ``are not associated with any broker, dealer, municipal 
securities dealer, or municipal advisor'' to a requirement that the 
majority be ``independent of any municipal securities broker, municipal 
securities dealer, or municipal advisor.''
  In section 978, the report authorized the SEC to set up a system to 
fund the Government Accounting Standards Board, the body which 
establishes standards of State and local government accounting and 
financial reporting.
  The report added section 989F, a GAO Study of Person to Person 
Lending, to recommend how this activity should be regulated.
  The report added section 989G to exempt issuers with less than $75 
million market capitalization from section 404(b) of the Sarbanes-Oxley 
Act of 2002 which regulates companies' internal financial controls. 
This section also adds an SEC study to determine how the Commission 
could reduce the burden of complying with section 404(b) of the 
Sarbanes-Oxle Act of 2002 for companies whose market capitalization is 
between $75 million and $250 million for the relevant reporting period 
while maintaining investor protections for such companies.
  Section 989I adds a follow-up GAO study on the impact of the 
Sarbanes-Oxley section 404(b) exemption in section 989G of this bill 
involving the frequency of accounting restatements, cost of capital, 
investor confidence in the integrity of financial statements and other 
matters, so we can understand its effect.
  The report added section 989J, which provides that fixed-index 
annuities be regulated as insurance products, not as securities. This 
provision clarifies a disagreement on the legal status of these 
  In section 991, the report changed the method of funding for the SEC 
so that it remains under the congressional appropriations process while 
giving the SEC much more control over the amount of its funding. The 
report also doubled the SEC authorization between 2010 and 2015, going 
from $1.1 billion to $2.25 billion, which will provide tremendous 
increase in SEC financial resources. These resources can be used to 
improve technology and attract needed securities and managerial 
expertise. However, the inspector general of the SEC and others have 
reported on situations where SEC financial or human resources have not 
been used effectively or with appropriate prior cost-benefit analysis. 
While the SEC is receiving more resources, we expect that it will use 
resources efficiently.
  Mr. President, Senator Dorgan wishes to be heard, which pretty much 
will end the debate. I will take a minute or so to conclude, and then 
the votes will occur around 2 o'clock.
  I ask unanimous consent that even though time may be expired, at 
least 10 minutes be reserved for the minority to be heard.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The Senator from North Dakota.
  Mr. DORGAN. Mr. President, I will vote for the conference report on 
financial reform. Before I describe why I think it is essential to vote 
in favor, let me compliment Senator Dodd. We have had some differences 
on some issues, but that is not unusual. What is unusual is when a 
piece of legislation this complicated, this consequential, and this 
large gets to this point so we will have a final vote and it will go to 
the President for signature. It is going to make a difference. It is 
not all I would want. I would have written some of it differently. But 
there are provisions in this legislation that will prevent that which 
happened that nearly caused this country to have a complete economic 
collapse. That was the purpose of writing the legislation.
  This bill on financial reform establishes a new independent bureau, 
housed at the Federal Reserve Board but not reporting to it, dedicated 
to protecting consumers from abusive financial products and practices. 
It puts in place systems to ensure taxpayer funds will not be used for 
Wall Street bailouts in the future. It creates an advanced warning 
system, looking out for troubled institutions to make sure we 
understand who they are and where they are, those whose failure would 
threaten financial markets and the economy. It imposes some curbs on 
proprietary trading and hedge fund ownership by banks. There are a 
number of things that are salutatory and important.
  The vote this afternoon is a starting point, not an ending point. I 
make the point by showing the headlines that exist in the newspapers 
these days about the fact that there will be substantial amounts of 
work done to try to curb activities even in the executive branch with 
respect to rules and regulations which are now essential.
  The PRESIDING OFFICER. The time under the control of the majority has 
  Mr. DORGAN. I ask the Senator from Connecticut, my understanding is 
Republicans have 10 minutes. I began the process because the Republican 
Senator was not here to claim that. I will be happy to cease at this 
point, if he wishes to take his 10 minutes, and then complete my 
statement, or I could complete my statement with more time.
  Mr. DODD. How much more time would my colleague require?
  Mr. DORGAN. Probably 7 more minutes or so.
  Mr. DODD. I think it follows more naturally that way.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. DORGAN. I appreciate the courtesy of the Senator from Nebraska.
  We all understand why this legislation is trying to prevent this from 
ever happening again. I have shown this on the floor many times. This 
was from a credit company called Zoom advertising mortgages. We ran up 
to a near collapse of the economy with companies advertising this: 
Credit approval is just seconds away. Get on the fast track at Zoom 
Credit. At the speed of light, Zoom Credit will preapprove you for a 
car loan, a home loan, a credit card, even if your credit is in the 
  Then it says: Zoom Credit is like money in the bank. We specialize in 
credit repair and debt consolidation. Bankruptcy, slow credit, no 
credit? Who cares?
  We wonder how this country got in trouble. Today on the Internet this 
exists. Nothing has changed. Speedy, bad credit loans. If you want to 
get a loan, you have bad credit, go to the Internet to this site. I am 
not advertising for them because clearly it is probably a bunch of 
shylocks running this operation. Bad credit, no credit, bankruptcy, no 
problem, no downpayment, no delays. Come to us, if you want money. 
  This is on the Internet today. It describes why we have to pass this 
legislation and what we are trying to do to protect the American 
consumer and why regulations that come from this are so important. Easy 
loan for you. Instant approval. Regardless of your credit score or 
history, approval is guaranteed.
  This sort of nonsense is not good business. It is not a sensible way 
to do things. It is what nearly bankrupted this country.
  Wall Street Journal, July 14, let me read the first sentence: Shirley 
Davis, 66 years old, retired phone company administrator, lives in 
Brooklyn, NY, is more than $33,000 dollars in debt, earns $2,400 a 
month, filed for bankruptcy last month. Shortly before that, she ripped 
open an envelope from Capitol One Financial Corporation which pitched 
her a credit card, even though it sued her 4 years ago to recover 
$4,400 she owed on a different credit card from the same bank.
  She is quoting now from the letter from Capital One:

       At some point we lost you as a customer, and we would like 
     to get you back.

  Mrs. Davis said she was stunned. ``Even I wouldn't give me a credit 
card at this point.''
  It is still going on. It is why passing this conference report is so 
  Would I have written it differently? Yes. I would have restored part 
of Glass-Steagall. Ten years ago that was taken apart. Those 
protections were put in place after the last Great Depression, and they 
protected this country for 70 years or so. It should have been put back 
  I would ban the trading of naked credit default swaps. That is 
betting, not investing. I would have done that.
  I would have imposed more aggressive curbs on proprietary trading by

[[Page S5931]]

banks. If the taxpayer has to underwrite you as a commercial bank, you 
ought not have a casino atmosphere in your lobby.
  Having said that, what was done in this legislation is a very 
substantial beginning. It is not an ending, No. 1. No. 2, the 
regulatory agencies now have to do a lot of work to make this bill 
work, to make this bill effective, to stop what happened from ever 
happening again.
  Finally, I believe there will be an additional need to legislate in 
the future to address some of the things I mentioned.
  I believe the work done to get to this point in a Chamber in which it 
is very difficult for us to accomplish anything is a success. I commend 
my colleague, Senator Dodd from Connecticut, and others who worked on 
this legislation in a thoughtful way to try to decide how we can stop 
this sort of thing. We all understood it. We heard these things on the 
radio and television. Massive loans, they would securitize them. They 
would trade the securities back up in derivatives and credit default 
swaps. Everybody was making money on all sides, but they were building 
a house of cards that came down and nearly collapsed this entire 
country's economy.
  A lot of people, as I speak today, are still paying the price. They 
got up this morning without a job, millions and millions of them. They 
can't find work. They are the victims of this cesspool of greed we have 
watched for far too long. This legislation has great merit in advancing 
solutions to these issues. That is why I will vote yes. Is it perfect? 
No. Is it an end point? No. It is a starting point in a process that is 
very important.
  I hope in the months ahead those who are charged with creating the 
regulatory environment to fix this, to implement this legislation, will 
get it right because they have the opportunity the way this is written 
to get this right if they are smart and effective and want to protect 
this country's economy.
  Thanks to those who put this together. I intend to cast my vote as 
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Connecticut.
  Mr. DODD. Briefly, I thank my colleague from North Dakota. He has 
been an outspoken advocate on behalf of working families in the time we 
have served together. The concerns he has expressed consistently in 
this process are ones I appreciate very much. We did have a couple of 
disagreements over how to proceed, but that is the normal process of 
doing business. It was done with civility during the debate and 
consideration of the legislation. But I am deeply grateful to him for 
his contributions and those of his staff. He made some good 
suggestions, and I thank my friend.
  The PRESIDING OFFICER. The Senator from Nebraska.
  Mr. JOHANNS. Mr. President, I ask unanimous consent to speak for 10 
minutes as in morning business.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (The remarks of Mr. JOHANNS pertaining to the introduction of S. 3593 
are located in today's Record under ``Statements on Introduced Bills 
and Joint Resolutions.'')
  The PRESIDING OFFICER. The Senator from Michigan is recognized.
  Mr. LEVIN. Mr. President, if there is no one on the minority side 
waiting to speak, I ask unanimous consent that I be allowed to speak 
for 4 minutes.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. LEVIN. Mr. President, for too long, too many firms on Wall Street 
have had free rein to profit at the expense of their own clients, to 
engage in the riskiest sorts of speculation, to prosper from their 
risky bets when they pan out, and to have the taxpayers cover the 
losses when they do not pan out. For too long, there has been no cop on 
the beat on Wall Street.
  That must end, and we can end it today by passing the Dodd-Frank 
bill. The legislation before us will rebuild the firewall between the 
worst high-risk excesses of Wall Street and the jobs and homes and 
futures of ordinary Americans.
  The Permanent Subcommittee on Investigations, which I chair, spent 18 
months and held four hearings investigating the causes of the financial 
crisis. The bill Senator Dodd and so many others have crafted will do 
much to rein in the problems we identified in our four hearings and 
during our investigation, and I greatly appreciate the recognition of 
the role of our work on the subcommittee in Senator Dodd's remarks last 
  This bill will prevent mortgage lenders such as Washington Mutual, 
the subject of our first hearing, from making ``liar loans'' to 
borrowers who cannot repay, from paying their salespeople more for 
selling loans with higher interest rates, and from unloading all the 
risk from their reckless loans on to the rest of the financial system.
  This bill will dissolve the Office of Thrift Supervision, which 
looked the other way despite abundant evidence of Washington Mutual's 
abuses, as our second hearing showed.
  This bill will bring new oversight and accountability to credit 
rating agencies, which, as our third hearing showed, issued inaccurate 
ratings that misled investors. Those ratings were paid for by the very 
same companies that produced the products being rated, which is a clear 
conflict of interest.
  The bill before us will rein in the abusive practices of investment 
banks such as Goldman Sachs, the subject of our fourth hearing. It will 
sharply limit their risky proprietary trading. It will stop the 
egregious conflicts of interest that result when these firms package 
and sell investment products, often containing junk they want to 
dispose of, and then make a bundle betting against those very same 
  Those who claim this bill fails to rein in Wall Street cannot explain 
the massive amounts of effort and money Wall Street has spent to defeat 
this bill. If Wall Street likes this bill, it sure has a funny way of 
showing it.
  The evidence from our investigation and from so many other sources is 
clear: We must put an officer back on the beat on Wall Street so the 
jobs, homes, and futures of Americans are not again destroyed by 
excessive greed. I commend Senator Dodd and his staff and all those who 
have brought us to this historic moment. More than anything else, it is 
the power of Senator Dodd's arguments and the deep respect for him 
among the Members of this body that have brought us to the finish line.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Connecticut.
  Mr. DODD. Mr. President, let me again say to my great friend, we have 
served here a long time together, Senator Carl Levin of Michigan and I. 
He does a remarkable job as chairman of the Armed Services Committee 
and the Governmental Oversight Committee, which he also handles as 
  I am not sure my colleague was here, but I pointed out yesterday that 
the hearings the Senator held just prior--I am sure people think we 
orchestrate all these things; we look more organized than we usually 
are around here, but the fact is, the Senator from Michigan went off 
and had planned the hearings for months. The amount of work he and his 
staff did for months in preparation for those hearings threw a 
tremendous amount of light and great clarity on the subject so that the 
average citizen in this country could actually see--not just read 
something but see--a moment occurring during those 2 days when the 
exposure of what had occurred was so vivid and so clear. Then, frankly, 
it was a matter of days after that when we were on the floor 
considering the legislation.
  As I said, I would love to tell people that was a highly organized 
set of events. It was purely coincidental the way it occurred. Again, 
those hearings that occurred publicly involved weeks and months of 
preparation before they were actually conducted.
  So I say to my friend from Michigan, I thank him immensely for his 
work, for his contribution to this bill as well, not for just the set 
of hearings but then working to include the provisions that are a part 
of this legislation. The Senator has made a very valuable contribution 
and has highlighted a very important point.
  It was fascinating to me, by the way, as to the number of former 
chief executive officers from major financial firms in the country who 
strongly endorsed what the Senator was doing. This was not merely a 
suggestion coming from consumer groups or labor organizations

[[Page S5932]]

or others that one might associate with the Senator's idea. But people 
who literally had spent their careers in the financial services sector 
were strongly recommending the contributions the Senator made to the 
  I do not think that was said often enough, that this was a 
significant contribution endorsed by those who understood, had worked, 
had earned livelihoods in this industry, who had watched an industry 
change dramatically over the years which subjected this country to the 
exposure that we are suffering from today.
  So I thank my friend from Michigan.
  The PRESIDING OFFICER. The Senator from Michigan.
  Mr. LEVIN. Mr. President, I thank my dear friend from Connecticut. He 
has made such an extraordinary contribution, not just to this bill but 
to this Senate over the years. I cannot say enough about him, his 
extraordinary integrity and passion that he brings to these subjects.
  Senator Merkley, on the proprietary trading language, of course, as 
the Senator from Connecticut has already recognized, is in the lead 
there and has been an absolutely great partner and leader on that.
  But I want to especially thank the Senator from Connecticut for his 
passion and for his--and I was very serious about the respect with 
which the Senator is held in this body. Without it, without that 
feeling about the Senator, as well as the cause the Senator espouses 
with others, obviously, we would not be where we are today.
  The PRESIDING OFFICER. The Senator from Connecticut.
  Mr. DODD. Mr. President, I thank my friend.
  We are about to wrap up this long journey, now going back a long 
  Let me mention a couple things. First of all, yesterday I included 
the names of the Senate Banking Committee staff who have made such a 
difference in the bill. I am not going to go back over all their names. 
They are arrayed in the Chamber. A couple of them are sitting next to 
me on the floor. Others are in the back. They are led by Eddie 
Silverman, who worked with me 20 years ago, as I arrived in the Senate. 
He spent decades with me and then left Senate service and went off and 
did other things in his life. At my request, he came back for the last 
year or so to be a part of this effort. So I thank a great personal 
friend, Eddie Silverman, for the job he did.
  I thank Amy Friend, who was also deeply involved in this legislation. 
If I start down the list, I am going to miss somebody. That is always a 
danger. But I thank all of the Members for the tremendous work they 
have contributed to this legislation.
  I thank Harry Reid, the majority leader. Again, I know I have talked 
about him on a couple of occasions. But if we do not have someone to 
help bring this all together, it does not happen.
  I see my colleague from the State of Washington. I do not know if she 
cares to be heard. I was sort of filling in time for the next few 
  Let me thank the Senator. She has been an advocate with great passion 
on these issues. She brought a great deal of knowledge. She is someone 
who has spent a career herself in the area of financial services and 
understands this issue beyond just the intellectual and theoretical 
standpoint but has lived it. She saw the successes of it and the 
failures of it. So she brings a great wealth of information and ability 
to the issue.
  I yield to my colleague.
  The PRESIDING OFFICER. The Senator from Washington.
  Ms. CANTWELL. Mr. President, I thank the chairman for yielding time.
  I thank the Senator for his diligence, particularly in the area of 
the derivatives market and the fact that this legislation will be the 
first time--the first time--the over-the-counter derivatives market in 
this country will be regulated.
  The fact that Congress made a mistake and said hands off to 
derivatives in 2000, and then an $80 trillion market exploded into what 
is today a $600 trillion dark market--the chairman has now made sure 
that for the first time ever, over-the-counter derivatives will be 
regulated. That means for the first time over-the-counter derivatives 
will have to be exchange-traded, which means there will be 
transparency. It is the first time over-the-counter derivatives will 
have to be cleared, which means a third party will have to validate 
whether there is real money behind these transactions.
  It is the first time the CFTC will be able to enforce aggregate 
position limits across all exchanges, which means you cannot hide this 
dark market derivative money on some exchange that is not properly 
regulated or try to make the market across all exchanges. It is the 
first time things like the London Loophole will be closed so we cannot 
have markets and exchanges that are not regulated. So the American 
people will know something as dangerous as credit default swaps--which 
brought down our economy--that now for the first time we will have 
regulation of these over-the-counter derivatives.
  I thank the chairman for his efforts in that area.
  A $600 trillion market, which is greater than 10 times the size of 
world GDP, is a danger to our economy if it is not regulated. Thank God 
we are going to be regulating it for the first time. I would encourage 
all my colleagues on the other side of the aisle, who at one point in 
time said these are too complicated to understand--understand, they 
brought down our economy and understand we are going to, for the first 
time, regulate over-the-counter derivatives.
  I thank the chairman for his leadership.
  The PRESIDING OFFICER. The Senator from Connecticut.
  Mr. DODD. Mr. President, I thank the Senator from Washington. Again, 
I thank her for her contribution.
  Mr. President, we have arrived at that moment. Let me make a 
parliamentary inquiry. There are two votes, as I understand it. One is 
on the waiver of the budget point of order, and the second vote that 
will occur will be on adoption of the conference report. Is that 
  The PRESIDING OFFICER. The Senator is correct.
  Mr. DODD. Mr. President, have the yeas and nays been ordered on the 
waiver of the budget point of order?
  Mr. DODD. Have the yeas and nays been ordered on adoption of the 
conference report?
  The PRESIDING OFFICER. They have not.
  Mr. DODD. Mr. President, I ask for the yeas and nays on the adoption 
of the conference report.
  The PRESIDING OFFICER? Is there a sufficient second?
  There is a sufficient second.
  The yeas and nays were ordered.
  Mr. DODD. Mr. President, in conclusion, I express my thanks to all. I 
want to thank the floor staff as well, both on the minority and 
majority side. We have spent a lot of time together over the last year, 
and I am deeply grateful to them for the orderly way in which they 
conduct their business and how fair and disciplined they are about 
making sure the floor of the Senate runs so well. So I thank them 
immensely for their work.
  I urge my colleagues to waive the point of order and to support this 
historic landmark piece of legislation that we hope will set our 
country on a course of financial stability and success in the 
generations to come.
  I yield the floor.
  The PRESIDING OFFICER. The question is on agreeing to the motion.
  The yeas and nays have been ordered.
  The clerk will call the roll.
  The bill clerk called the roll.
  The yeas and nays resulted--yeas 60, nays 39, as follows:

                      [Rollcall Vote No. 207 Leg.]


     Brown (MA)
     Brown (OH)
     Nelson (NE)
     Nelson (FL)
     Udall (CO)
     Udall (NM)



[[Page S5933]]

  The PRESIDING OFFICER. On this vote, the yeas are 60, the nays are 
39. Three-fifths of the Senators duly chosen and sworn having voted in 
the affirmative, the motion is agreed to.
  Mr. REID. Mr. President, I have been conferring off and on throughout 
the day with the Republican leader. There will be no more votes today 
following final passage. That will be the last vote today.
  We are going to swear in the new Senator from West Virginia at 2:15 
p.m. on Tuesday. Immediately after that, as soon as that is over, at 
2:30, we will vote on extending unemployment benefits.
  The Republican leader and I are working on a way to move forward on 
small business. I think we have a pretty good path figured out on that.
  After that, it is my intention to move to the supplemental 
appropriations bill. It appears that we are going to have to have a 
cloture vote. I think we can work out the time on that and not spend 
too much time.
  I have conferred with the Republican leader at the beginning of the 
work period, on Monday. We have a list of things we need to accomplish 
before we leave here. As everybody knows, we are going to be here 
either 4 or 5 weeks. The leaders--Democrat and Republican--are betting 
on 4 rather than 5 weeks. But we need cooperation to get that done.
  The PRESIDING OFFICER. The question is on agreeing to the conference 
  The yeas and nays having been ordered, the clerk will call the roll.
  The legislative clerk called the roll.
  The PRESIDING OFFICER. Are there any other Senators in the Chamber 
desiring to vote?
  The result was announced--yeas 60, nays 39, as follows:

                      [Rollcall Vote No. 208 Leg.]


     Brown (MA)
     Brown (OH)
     Nelson (NE)
     Nelson (FL)
     Udall (CO)
     Udall (NM)


  The conference report was agreed to.
  Mr. DODD. Mr. President, I move to reconsider the vote by which the 
conference report was agreed to and to lay that motion on the table.
  The motion to lay on the table was agreed to.
  The PRESIDING OFFICER. The Senator from Pennsylvania is recognized 
for 30 minutes.