[Congressional Record Volume 160, Number 150 (Wednesday, December 10, 2014)]
[Senate]
[Page S6532]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                           DODD-FRANK REFORM

  Mr. LEVIN. Mr. President, 14 years ago, Congress made a grave 
mistake. In the dead of night, as part of the Consolidated 
Appropriations Act of 2001, Congress passed a little-noticed provision 
that prohibited all meaningful oversight and regulation of swaps, which 
then were the latest financial product in the fast-growing financial 
derivatives market. In that new regulatory void, the swaps markets grew 
to unprecedented size and complexity. It was the swaps market that 
ultimately lead to unprecedented taxpayer bailouts of some of the 
largest financial institutions in the world.
  Some have estimated that the cost of the last crisis was $17 
trillion--with a ``t''. To the families across the country, it meant 
lost jobs, home foreclosures and reduced home values for those who did 
not lose their homes. Far too many of my constituents, far too many 
Americans, are still struggling to recover. It was all enabled by 
Congress passing a financial regulatory provision with little 
consideration, tucked inside a funding bill.
  We enacted the Dodd-Frank Wall Street Reform and Consumer Protection 
Act, in part, to address the significant risks posed by swaps and other 
financial derivatives. Section 716 was a key component of the financial 
reforms. That provision is titled ``Prohibition Against Federal 
Government Bailouts of Swaps Entities.'' It explicitly prohibited 
taxpayer bailouts of banks that trade swaps. It set out a plan to help 
achieve that goal, by requiring bank holding companies to move much of 
their derivatives trading outside of their FDIC-insured banks.
  This provision has come to be known as the ``swaps push out'' 
provision. Four years after its enactment, however, banking regulators 
have yet to finalize a rule to enforce compliance. Before they do, some 
in Congress want to relieve them of the obligation altogether.
  Some of the largest bank holding companies prefer to conduct their 
swaps trades in their government-backed, FDIC-insured banks because 
they have better credit ratings, which means lower borrowing costs and 
therefore higher profits. But because the activity is within the bank, 
it puts the Federal Government--and taxpayers--directly on the hook for 
those bets that, as we saw in the financial crisis, can be unlimited in 
number, because banks can create an unlimited number of ``synthetic'' 
derivatives related to a particular financial asset.
  A couple years ago, JPMorgan Chase lost billions of dollars on a bad 
bet in the credit derivatives markets. The Permanent Subcommittee on 
Investigations, which I chair, conducted an extensive investigation and 
issued a 300-page bipartisan report with its findings. JPMorgan's risky 
trading by its bank was a disaster--costing the bank over $6 billion. 
It was receiving the taxpayer subsidy the whole time.
  To be clear, Section 716 does not cure all the risks posed by swaps. 
But it was an important part of the effort to protect us from another 
crisis. Along with the creation of the Consumer Financial Protection 
Bureau and the Merkley-Levin provisions on proprietary trading and 
conflicts of interest, these reforms form the backbone of the Dodd-
Frank Act's safeguards.
  By repealing this provision, we would ignore the lessons of the last 
financial crisis and weaken Dodd-Frank's protections against the next 
crisis.
  American families and businesses deserve better than this. If there 
are provisions in the Dodd-Frank Act that need to be improved or 
reformed, the appropriate Senate committees should review, evaluate, 
and modify them. They should be given time on the Senate floor for 
further review and improvement. The proponents of this legislation 
should explain why they think that deregulating swaps--before we ever 
started re-regulating them--is the right course of action. They should 
explain why taxpayers should run the risk of bailing out risky swaps 
trades gone bad. They should explain why, despite the loss of millions 
of jobs and trillions of dollars the last time Congress deregulated 
derivatives, this time will be different. A legislative vehicle is the 
right place for considering these issues, not an urgent appropriations 
bill.

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