[Congressional Record (Bound Edition), Volume 156 (2010), Part 9]
[Senate]
[Pages 13133-13200]
[From the U.S. Government Publishing Office, www.gpo.gov]




   WALL STREET REFORM AND CONSUMER PROTECTION ACT--CONFERENCE REPORT

  The ACTING PRESIDENT pro tempore. Under the previous order, the 
Senate will resume consideration of the conference report to accompany 
H.R. 4173, which the clerk will report.
  The assistant legislative clerk read as follows:

       Conference report to accompany H.R. 4173, to provide for 
     financial regulatory reform, to protect consumers and 
     investors, to enhance Federal understanding of insurance 
     issues, to

[[Page 13134]]

     regulate the over-the-counter derivatives markets, and for 
     other purposes.

  The ACTING PRESIDENT pro tempore. Under the previous order, the time 
until 11 a.m. shall be equally divided and controlled by the Senator 
from Connecticut, Mr. Dodd, and the Senator from Alabama, Mr. Shelby, 
or their designees, with the final 20 minutes divided equally between 
the two managers and the two leaders.
  The Senator from Hawaii.
  Mr. AKAKA. Madam President, I strongly support the Dodd-Frank 
conference report. I commend the chairman for all of his work to 
address so many issues vitally important to working families. I thank 
my friend from Connecticut for working closely with me to ensure this 
legislation will educate, protect, and empower consumers and investors.
  An Office of Financial Education within the Consumer Financial 
Protection Bureau is created by the legislation. The office is tasked 
with developing and implementing initiatives to educate and empower 
consumers. A strategy to improve financial literacy among consumers, 
that includes measurable goals and benchmarks, must be developed. The 
administrator of the bureau will serve as vice-chairman of the 
Financial Literacy and Education Commission to ensure meaningful 
participation in Federal efforts intended to help educate, protect, and 
empower working families.
  The conference report also addresses investor literacy. A financial 
literacy study must be conducted by the Securities and Exchange 
Commission, SEC. The SEC will be required to develop an investor 
financial literacy strategy intended to bring about positive behavioral 
change among investors.
  Essential consumer and investor protections for working families are 
included in the conference report. A regulatory structure that will 
have a greater emphasis on investor and consumer protections is 
established. Regulators failed to protect consumers and that 
contributed significantly to the financial crisis. Prospective 
homebuyers were steered into mortgage products that had risks and costs 
that they could not understand or afford. The Consumer Financial 
Protection Bureau will be empowered to restrict predatory financial 
products and unfair business practices in order to prevent unscrupulous 
financial services providers from taking advantage of consumers.
  I take great pride in my contributions to the investor protection 
portion of the legislation. Section 915 will strengthen the ability of 
the Securities and Exchange Commission to better represent the 
interests of retail investors by creating an investor advocate within 
the SEC. The investor advocate is tasked with assisting retail 
investors to resolve significant problems with the SEC or the self-
regulatory organization, SROs. The investor advocate's mission includes 
identifying areas where investors would benefit from changes in 
Commission or SRO policies and problems that investors have with 
financial service providers and investment products. The investor 
advocate will recommend policy changes to the Commission and Congress 
on behalf of investors.
  The investor advocate is precisely the kind of external check, with 
independent reporting lines and independently determined compensation, 
that cannot be provided within the current structure of the SEC. It is 
not that the SEC does not advocate on behalf of investors, it is that 
it does not have a structure by which any meaningful self-evaluation 
can be conducted. This would be an entirely new function. The investor 
advocate would help to ensure that the interests of retail investors 
are built into rulemaking proposals from the outset and that agency 
priorities reflect the issues confronting investors. The investor 
advocate will act as the chief ombudsman for retail investors and 
increase transparency and accountability at the SEC. The investor 
advocate will be best equipped to act in response to feedback from 
investors and potentially avoid situations such as the mishandling of 
information that could have exposed ponzi schemes much earlier. We also 
worked with our colleagues in the other Chamber to include an ombudsman 
that will be appointed by and report to the investor advocate.
  I also worked to include in the legislation clarified authority for 
the SEC to effectively require disclosures prior to the sale of 
financial products and services. Working families rely on their mutual 
fund investments and other financial products to pay for their 
children's education, prepare for retirement, and be better able to 
attain other financial goals. This provision will ensure that working 
families have the relevant and useful information they need when they 
are making decisions that determine their financial future.
  Unfortunately, too many investors do not know the difference between 
a broker and an investment advisor. Even fewer are likely to know that 
their broker has no obligation to act in their best interest. 
Investment advisors currently have fiduciary obligations. However, 
brokers must only meet a suitability standard that fails to 
sufficiently protect investors.
  In a complicated financial marketplace, for investors in which 
revenue sharing agreements and commissions can vary significantly for 
similar products, we must ensure that all investment professionals that 
offer personalized investment advice have a fiduciary duty imposed on 
them.
  In 2005, I first introduced legislation that would have imposed a 
fiduciary duty on brokers. I knew then that action was necessary. I am 
proud that a vital investor protection was also included in the 
conference report that will ensure that a fiduciary duty is imposed on 
brokers when giving personalized investment advice. This change is 
necessary because it will ensure that all financial professionals, 
whether they are an investment advisor or a broker, have the same duty 
to act in the best interests of their clients. Investors must be able 
to trust that their broker is acting in their best interest and we must 
not allow brokers to push higher commission products that may be 
inappropriate for a particular client. I appreciate all of the efforts 
of Chairman Frank, Senator Menendez, and Senator Johnson for all of 
their efforts on this important new investor protection.
  This legislation also includes landmark consumer protections for 
remittance transactions. Working families often send substantial 
portions of their earnings to family members living abroad. In Hawaii, 
many of my constituents remit money to their family members living in 
the Philippines. Consumers can have serious problems with their 
remittance transactions, such as being overcharged or not having their 
money reach the intended recipient. Remittances are not currently 
regulated under Federal law, and State laws provide inadequate consumer 
protections.
  The conference report modifies the Electronic Fund Transfer Act to 
establish consumer protections for remittances. It will require simple 
disclosures about the cost of sending remittances to be provided to the 
consumer prior to and after the transaction. A complaint and error 
resolution process for remittance transactions would be established. I 
appreciate all of the efforts of the chairman, Representative 
Gutierrez, and the Department of the Treasury for working with me on 
this important piece of the bill for immigrant communities.
  This legislation also includes essential economic empowerment 
opportunities for working families. Title XII, Improving Access to 
Mainstream Financial Institutions, is the most important economic 
empowerment provision in the bill. I appreciate the assistance provided 
by my friend from Wisconsin, Senator Kohl in helping me put this title 
together. I appreciate the support and contributions made to this title 
provided Senators Schumer, Brown, Merkley, and Menendez.
  I grew up in a family that did not have a bank account. My parents 
kept their money in a box divided into different sections so that money 
could be separated for various purposes. Church donations were kept in 
one part. Money for clothes was kept in another and there was a portion 
of the box reserved for food expenses. When there

[[Page 13135]]

was no longer any money in the food section, we did not eat. Obviously, 
money in the box was not earning interest. It was not secure.
  I know personally the challenges that are presented to families 
unable to save or borrow when they need small loans to pay for 
unexpected expenses. Unexpected medical expenses or a car repair bill 
may require small loans to help working families overcome these 
obstacles.
  Mainstream financial institutions are a vital component to economic 
empowerment. Unbanked or underbanked families need access to credit 
unions and banks and they need to be able to borrow on affordable 
terms. Banks and credit unions provide alternatives to high-cost and 
often predatory fringe financial service providers such as check 
cashers and payday lenders. Unfortunately, approximately one in four 
families are unbanked or underbanked.
  Many of the unbanked and underbanked are low and moderate-income 
families that cannot afford to have their earnings diminished by 
reliance on these high-cost and often predatory financial services. 
Unbanked families are unable to save securely for education expenses, a 
down payment on a first home, or other future financial needs. 
Underbanked consumers rely on nontraditional forms of credit that often 
have extraordinarily high interest rates. Regular checking accounts may 
be too expensive for some consumers unable to maintain minimum balances 
or afford monthly fees. Poor credit histories may also limit their 
ability to open accounts. Cultural differences or language barriers 
also present challenges that can hinder the ability of consumers to 
access financial services. I also want to clarify that in section 1204, 
small dollar-value loans and financial education and counseling 
relating to conducting transactions in and managing accounts are only 
examples of, and not limitations on, eligible activities.
  More must be done to promote product development, outreach, and 
financial education opportunities intended to empower consumers. Title 
XII authorizes programs intended to assist low and moderate-income 
individuals establish bank or credit union accounts and encourage 
greater use of mainstream financial services. It will also encourage 
the development of small, affordable loans as an alternative to more 
costly payday loans.
  There is a great need for working families to have access to 
affordable small loans. This legislation would encourage banks and 
credit unions to develop consumer friendly payday loan alternatives. 
Consumers who apply for these loans would be provided with financial 
literacy and educational opportunities.
  The National Credit Union Administration has provided assistance to 
develop these small consumer-friendly loans. Windward Community Credit 
Union in Hawaii implemented a very successful program for the U.S. 
Marines and other community members in need of affordable short term 
credit. More working families need access to affordable small loans. 
This program will encourage mainstream financial service providers to 
develop affordable small loan products.
  I thank the Banking Committee staff for all of their extraordinary 
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 members of the Committee, including Laura 
Swanson, Kara Stein, Jonah Crane, 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.
  In conclusion, this bill will improve the lives of working families 
in our country because it will educate, protect, and empower consumers 
and investors.
  The ACTING PRESIDENT pro tempore. The Senator from Maryland.
  Mr. CARDIN. Madam President, I take this time to urge my colleagues 
to vote for cloture on the Dodd-Frank Wall Street Reform and Consumer 
Protection Act and to vote for final passage.
  First, I congratulate Senator Dodd for the leadership he has shown in 
marshaling this legislation through some very difficult challenges in 
the Congress, getting it through the Senate floor, working out the 
differences between the House and Senate, so we now are on the verge of 
passing the most significant reform of Wall Street in many years.
  This bill corrects a regulatory structure that today allows reckless 
gambling on Wall Street; that creates too big to fail, where government 
bailouts are necessary to keep companies afloat because there are no 
other options available to our regulators. It ends reckless gambling on 
Wall Street. It ends the need for government bailouts of institutions 
that are too big to fail. It provides for strong consumer protection--
protection for many forms of lending but, most importantly, the 
residential mortgage market.
  We saw in this financial crisis that even responsible consumers 
suffered at the hands of aggressive lenders with dubious intentions. 
This legislation will create a consumer bureau that will end those 
types of practices, that will be on the side of the consumer, that is 
independent, so the consumer is represented in the financial structure.
  I want to highlight some provisions that were included in this 
legislation I worked on with our colleagues to get included in the 
bill. I am very grateful to Senator Dodd, the leadership of the Banking 
Committee, and our representatives in conference who were able to 
include provisions that I think add to the importance of this bill.
  The first provision I want to talk about is a provision I worked on 
with Senator Enzi and Senator Brownback that will make permanent the 
federally insured deposit limits from $100,000 to $250,000. We did that 
recently in order to encourage more deposits, to help our economy, to 
provide capital for businesses. This limit included in this bill is now 
made permanent at $250,000.
  Insured deposits have been the stabilizing force for our Nation's 
banking system for the past 75 years. They promote public confidence in 
our banking system and prevent bank runs. They are particularly 
important to community banks. I know many of us talk about what we can 
do to help our small businesses, how can we free up more credit to get 
small businesses the loans they need in order to create the jobs that 
are needed for our economy. We all know community banks are the most 
stable source of funds for investments in our communities and small 
businesses.
  Community banks rely more on insured deposits than large banks. Madam 
President, 85 percent to 90 percent of the funds community banks have 
are included in insured deposits. So this amendment that will make 
permanent the $250,000 limit will help provide a more steady source of 
funds for our community banks which will allow them to be able to 
invest in our communities.
  Another provision that is included in this conference report is one I 
worked on with my colleague from Maryland, Senator Mikulski, dealing 
with the enhanced supervision for nonbank financial companies. What we 
are talking about are mutual funds and their advisers, to make sure 
they are not inadvertently subjected to unworkable standards. Here we 
are talking about promoting funds necessary for venture capital and 
equity investments in our communities, to make sure there is a 
difference between the type of activities of mutual fund operators who 
rely primarily on risk investment and those that are primarily involved 
in insured deposits. I appreciate the conference committee clarifying 
that provision in the conference report, which Senator Mikulski and I 
encouraged them to do.
  Another provision I want to talk about very briefly is one I worked 
on with Senator Grassley dealing with whistleblower protections at 
nationally recognized statistical rating organizations, NRSROs as they 
are known.

[[Page 13136]]

But I think most people in our country know them as credit rating 
agencies. These are companies such as Moody's and Standard & Poor's. 
There are about 10 in our country that are supposed to do independent 
credit ratings for securities.
  As I am sure many people are now aware, they played a significant 
role in the unrealistic confidence in securities during our recent 
economic downturn.
  We want to make sure our credit rating agencies, in fact, carry out 
the responsibilities they are supposed to carry out as independent 
evaluators. But competition, pressure, and inherent conflicts have made 
that uncertain. The whistleblower protections that are extended in this 
legislation will allow employees to come forward with information 
without fear of retribution by their employer. It is a very important 
provision, and I am glad it was included in the final legislation.
  Lastly, let me talk about the extractive industries transparency 
initiative, an amendment Senator Lugar and I worked very hard on, that 
is included in the final conference report. I have spoken on the Senate 
floor previously about this provision, and I particularly thank Senator 
Leahy for his leadership in the conference on this issue and Senator 
Dodd for his help in getting it included in the final conference 
report.
  Oil, gas, and mining companies registered with the U.S. Securities 
and Exchange Commission will be required under this legislation to 
disclose their payments to governments for access to oil, gas, or 
minerals. Many of these oil companies or gas companies or mineral 
companies operate in countries that are autocratic, unstable, or both, 
and they have to make payments to those countries in order to be able 
to get access to those mineral rights. This legislation--the amendment 
that is included in this bill--will require public disclosure of those 
payments.
  Why is that so important? And why was it included in the final 
conference report? First, transparency encourages and provides for more 
stable governments. We rely on these energy sources or mineral supplies 
in countries that are of questionable stability.
  If this disclosure will help make those countries more stable, it 
provides security for the United States in their supply source, whether 
it is an energy or mineral supply source. So this amendment that is 
included in the conference report will help with U.S. energy security.
  Secondly, investors have a right to know. If you are going to invest 
in an oil company, you have a right to know where they are doing 
business, where they are making payments. I would think this is 
information that may affect your decision as to whether you want to 
take this risk in investing in that company. So this amendment provides 
greater disclosure for investors to be able to make intelligent 
decisions as to whether to invest in an oil or gas or mineral company.
  Third, as we know, with the lack of transparency, the payments become 
a source of corruption for government officials in many of these 
resource-wealthy countries. It is interesting; it is known as the 
``resource curse,'' not the ``resource blessing'' in many countries 
around the world. It is interesting that some of our most wealthy 
mineral countries are the poorest countries as far as their people in 
the world. The citizens of these countries are entitled to have their 
mineral wealth be used to elevate their personal status. By giving the 
citizens the information about how payments are made to their country, 
they have a much better chance to hold their government officials 
accountable.
  So we not only are protecting investors and helping in energy 
security, we are helping to alleviate poverty internationally by 
allowing the people of the countries that have mineral wealth to hold 
their officials accountable, to use those payments to help the people 
of that nation.
  This proposal has been endorsed by the G8, the International Monetary 
Fund, and the World Bank. With the passage of the conference report, 
the United States will be the leader internationally on extractive 
industries transparency, and I think that is a proud moment not only 
for the Senate but for our Nation.
  This is a good bill for many reasons. It is a well-organized, 
commonsense regulatory structure to protect our Nation from another 
financial crisis, with strong investor and consumer protection, placing 
limits on institutions deemed too big to fail, protecting not only 
investors and consumers but also taxpayers.
  Over the past 30 years, our regulatory framework did not keep pace 
with financial innovation. It was particularly impotent with regard to 
oversight of the so-called shadow banking system, which evolved in 
large part simply to avoid regulation.
  Decreased regulation led to irresponsible behavior by financiers, 
investors, lenders, and consumers. Collectively, we failed to mitigate 
risk and we ignored established principles of finance--prudence, 
solvency, and accountability. We can shift risk, but we cannot make it 
magically disappear. Bubbles do burst eventually.
  Everyone played a part in the crisis. Together, we suffer the 
consequences. No man is an island; we are all connected.
  Risky mortgage lending--practices including no-doc or stated income 
loans--no down payments, and subprime lending led to unprecedented 
foreclosures.
  Consumers securing mortgages beyond their means and horrible 
predatory lending practices permeated our culture.
  Even responsible consumers suffered at the hands of aggressive 
lenders with dubious intentions.
  The mortgage lending system was seriously flawed. America got hit by 
a tidal wave of foreclosures. Declining home values affect everyone in 
the community.
  And problems in mortgage lending became exacerbated when these bad 
mortgages were packaged into securities and sliced and diced and sold 
to investors with AAA credit ratings.
  Careful underwriting went out the window because the loan originators 
sold the notes as fast as they could write them.
  The bill the Senate is considering goes a long way to restore the 
order we need in the financial markets, improve oversight of the 
mortgage industry, and address the numerous other issues that led to 
the worst financial crisis since the Great Depression. This bill holds 
Wall Street more accountable and provides the strongest consumer 
protections ever for American families and small businesses.
  I know there are partisan disagreements on some parts of this 
legislation and it was a challenge to get to this point, but the 
chairman and ranking member of the Banking Committee did an outstanding 
job on this bill and are to be commended for their effort. This is a 
landmark bill, like Sarbanes-Oxley and the original Securities and 
Exchange Commission Act. The lesson we had to learn, again, is that 
business--especially big business--cannot regulate itself adequately. I 
think H.R. 4173 strikes the right balance in reining in the financial 
services industry without being unduly burdensome.
  I would like to review some of the provisions I worked on that have 
been included in the bill.
  As I have said, Senators Enzi and Brownback joined me in proposing 
changes to the deposit insurance program. The Independent Community 
Bankers of America, ICBA, the American Bankers Association, ABA, and 
the National Credit Union Association, NCUA, all supported our 
amendment--now found in section 335 of the bill--to make the temporary 
increase in the federally insured deposit limit from $100,000 to 
$250,000--a permanent increase. An increase in the Federal Deposit 
Insurance Corporation, FDIC, and National Credit Union Share Insurance 
Fund, NCUSIF, limit is significant because deposit insurance has been 
the stabilizing force of our Nation's banking system for 75 years.
  By raising the limit permanently, we provide safe and secure 
depositories for small businesses and individuals alike. FDIC insurance 
prevents bank runs and has been proven to increase public confidence in 
the system. FDIC insurance limits are especially significant to 
community banks, which rely on deposits much more heavily than larger

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banks. On average, smaller banks derive 85 percent to 90 percent of 
their funding from deposits. Ensuring a stable funding source for 
community banks helps these institutions to continue providing 
crucially important capital to the small businesses whose growth is at 
the heart of our economic recovery.
  And as I mentioned earlier, during Senate consideration of the bill, 
I offered an amendment with Senator Mikulski to ensure that mutual 
funds and their advisers are not inadvertently subjected to unworkable 
standards in the unlikely event the Financial Stability Oversight 
Council designates them as systemically risky. In section 115 of the 
bill, the new council is given the flexibility to consider capital 
structure, riskiness, complexity, financial activities, size, and other 
factors when determining heightened regulatory standards. This is 
important for addressing the unique characteristics of companies that 
are structured differently from banks and bank holding companies.
  Further, I am gratified the House and Senate conferees saw fit to 
retain an amendment, amendment No. 3840, Senator Grassley and I offered 
to the bill to extend whistleblower protections to employees of 
nationally recognized statistical rating organizations, NRSROs. The 
provision is section 922(b) of the bill.
  NRSROs are the companies, such as Moody's and Standard & Poor's, 
which issue credit ratings that the U.S. Securities and Exchange 
Commission, SEC, permits other financial firms to use for certain 
regulatory purposes. There are 10 NRSROs at present, including some 
privately held firms.
  The NRSROs played a large role--by overestimating the safety of 
residential mortgage-backed securities, RMBS, and collateralized debt 
obligations, CDOs--in creating the housing bubble and making it bigger. 
Then, by making tardy but massive simultaneous downgrades of these 
securities, they contributed to the collapse of the subprime secondary 
market and the ``fire sale'' of assets, exacerbating the financial 
crisis.
  A Permanent Subcommittee on Investigations, PSI, hearing made it 
quite clear that competitive pressures and inherent conflicts of 
interest affected the objectivity of the ratings issued by the NRSROs.
  Since NRSRO ratings are used for various regulatory purposes, such as 
determining net capital requirements and the soundness of insurance 
company reserves, it makes sense to extend whistleblower protections to 
employees who might come across malfeasance at a credit rating agency.
  There are many reasons for the massive failure of the NRSROs. The 
Wall Street reform bill contains several provisions to improve SEC and 
congressional oversight of the NRSROs and how they function. Extending 
whistleblower status to the employees of these firms enhances the 
provisions already in the underlying bill.
  As I have also said, my distinguished colleague, Senator Lugar, and I 
worked particularly hard on the energy security through transparency 
provision in this bill, which is section 1504--Disclosure of Payments 
by Resource Extraction Issuers. I am especially grateful to Senator 
Leahy, who championed this provision in the conference committee.
  The geography and nature of the oil, gas, and mining industry is such 
that companies often have to operate in countries that are autocratic, 
unstable, or both. Investors need to know the full extent of a 
company's exposure when it operates in countries where it is subject to 
expropriation, political and social turmoil, and reputational risks.
  In Nigeria, for example, American companies have had to take oil 
fields offline because of rebel activity and instability in the Niger 
Delta. Last year, Nigeria was producing almost a million barrels of oil 
less than it was able to produce because of conflict and instability. 
With so much production offline, American oil companies such as Chevron 
and Exxon have laid off workers and paid higher production costs 
because of added security.
  This bipartisan amendment goes a long way to achieving transparency 
in this critical sector by requiring all foreign and domestic companies 
registered with the U.S. Securities and Exchange Commission, SEC, to 
include in their annual report to the SEC how much they pay each 
government for access to its oil, gas, and minerals. This amendment is 
a critical part of the increased transparency and good governance that 
we are striving to achieve in the financial industry.
  Our amendment is vitally important. Transparency helps create more 
stable governments, which in turn allows U.S. companies to operate more 
freely--and on a level playing field--in markets that are otherwise too 
risky or unstable.
  Let me point out three key results we expect from this provision:
  No. 1, enhancing U.S. energy security. The reliability of oil and gas 
supplies is undermined by the instability caused when local populations 
do not receive the benefit of their resource exports. Enhancing 
openness in revenue flows allows for greater public scrutiny of how 
revenues are used. Increased transparency can help create more stable, 
democratic governments, as well as more reliable energy suppliers.
  No. 2, strengthening energy markets. The extractive industries are 
capital-intensive and dependent on long-term stability to generate 
favorable returns. Leading energy companies recognize that more 
transparent investment climates are better for their bottom lines.
  No. 3, helping to alleviate poverty. Too many resource-rich countries 
that should be well off are home to many of the world's poor instead. 
This is a phenomenon known as the ``resource curse.'' Oil, gas 
reserves, and minerals don't automatically confer wealth on the people 
who live in countries where those resources are located. Many resource-
rich countries rank at the bottom of most measures of human 
development, making them a breeding ground for poverty and instability. 
Revenue transparency will help the citizens of resource-rich countries 
hold their governments more accountable and ensure that their country's 
natural resource wealth is used wisely for the benefit of the entire 
nation and for future generations.
  The wave of the future is transparency, and these principles of 
transparency have been endorsed by the G8, the International Monetary 
Fund, the World Bank, and a number of regional development banks. It is 
clear to the financial leaders of the world that transparency in 
natural resource development is vital to holding the rulers in these 
countries accountable for the needs of their citizens and preventing 
them from simply building up their personal offshore bank accounts. I 
am proud to stand here today and say that the United States is now the 
leader in creating a new standard for revenue transparency in the 
extractive industries.
  These are some of the provisions I worked on, but they are a small 
part of the overall bill, which is very strong.
  Forty years ago, conservative economist Milton Friedman wrote a New 
York Times Magazine article entitled ``The Social Responsibility of 
Business is to Increase its Profits.'' In this article, quoting from 
his earlier book ``Capitalism and Freedom,'' from 1962, he concluded:

       There is one and only one social responsibility of 
     business--to use its resources and engage in activities 
     designed to increase its profits so long as it stays within 
     the rules of the game, which is to say, engages in open and 
     free competition without deception or fraud.

  Even this minimalist position suggests that markets need rules. And 
yet we embarked on a 30-year path to deregulate financial services, to 
ease the rules, and remove the watchdogs. We have learned a bitter 
lesson that markets are not self-correcting--at least not without 
catastrophic consequences. Millions of Americans have lost their jobs, 
their savings, their homes, and their retirement security. Businesses 
have been wiped out. We have gone from easy credit to no credit.
  Now that the financial hurricane has wreaked its devastation, it is 
time to rebuild.
  H.R. 4173 is part of that process. The bill creates well-organized, 
commonsense regulatory structures to protect

[[Page 13138]]

our Nation from another financial crisis. Chairman Dodd and Chairman 
Frank have produced a bill that addresses the feasibility of our 
reliance on credit rating agencies, our appetite for systemic risk, and 
the need to limit the regulatory burden on our small institutions. They 
have produced a bill that provides strong investor and consumer 
protections, encourages whistleblowers, reduces interchange fees for 
small businesses, and places limits on institutions deemed too big to 
fail. I know that Maryland banks and investment companies appreciate 
the attention paid in this bill to their concerns regarding bank and 
thrift oversight, systemic risk regulation, and the effects of the 
mortgage crisis.
  While Members of Congress may not agree on every aspect of this bill, 
it is worthy of our support. Indeed, given the stakes, it is imperative 
that we pass H.R. 4173.
  I urge my colleagues to vote for cloture and support passage.
  Madam President, I yield the floor.
  The ACTING PRESIDENT pro tempore. The Senator from Georgia.
  Mr. CHAMBLISS. Madam President, I rise today in strong opposition to 
H.R. 4173. I think it is interesting to note we have had a number of 
speakers who are proponents of this legislation come forward--just as 
my good friend from Maryland just did--and say we are going to be the 
leader, the United States is going to be the leader in the financial 
world market with these changes.
  Well, the fact is, other countries that have strong financial markets 
have said publicly just the opposite. What I am afraid we are setting 
ourselves up for, and what I talked about a lot during the course of 
the debate on the Senate floor relative to this bill, is that what we 
are going to wind up doing is we are going to be driving jobs and 
business overseas with this massive piece of legislation that truly 
does not address the problem.
  There is nothing in these 2,300 pages that deals with the primary 
catalyst of the market instability in our economy--the bailout 
behemoths, Fannie Mae and Freddie Mac. The bill simply ignores the 
devastating impact these two entities continue to have not only on our 
capital markets but also on our Nation's deficit, already demanding 
over $145 billion in taxpayer assistance, and with no end in sight as 
to what it is ultimately going to cost the taxpayers of this country.
  The newly created consumer protection bureau is an affirmation that 
the proponents of the legislation have acknowledged government failures 
were a significant cause of our economic turmoil. But they still 
believe bigger government is the solution going forward, and despite 
failure after failure among various regulatory agencies, a new agency 
is the answer to these shortcomings, and this time it is going to be 
different.
  Instead of addressing the problems of the consumer protections in 
place under our current regulatory structure, this new oversight agency 
is an added layer of bureaucracy with the authority to examine and 
enforce new regulations for not only all mortgage-related businesses, 
but also small mom-and-pop businesses on Main Street such as payday 
lenders, check cashers, and other nonfinancial firms. These types of 
entities were clearly not the cause of the economic crisis, yet they 
will now be subject to the same regulations as the large financial 
institutions on Wall Street. This is simply another example of the 
majority party's preference for a one-size-fits-all regulatory 
structure, stifling economic growth.
  Having participated in the conference committee, I unfortunately 
witnessed firsthand the complete disregard for addressing the real 
issues at hand. As ranking member of the Agriculture Committee, I have 
spent a great deal of time understanding the over-the-counter 
derivatives market--its complexities, and its legitimate utility. I 
have found that both Republicans and Democrats generally agree on the 
major issues relating to derivatives regulation. We all generally agree 
there needs to be greater transparency, registration, more clearing, 
and compliance with a whole host of business conduct and efficient 
market operation regulations. This is important, because it is a 180-
degree shift away from current law where over-the-counter swaps are 
essentially unregulated today.
  Within this general agreement that swaps need to go from unregulated 
to fully regulated, we have had disagreements about who should be 
required to clear their transactions and how best to require swaps to 
be transacted and reported. These disagreements are significant because 
they involve real burdens and duties which will result in real costs to 
businesses and consumers. I wish to make sure our new regulations are 
targeted to serve a useful purpose. Unfortunately, this legislation 
will enable regulators to impose restrictions on businesses that had 
absolutely nothing to do with creating the financial crisis. Every 
industry in the country uses derivatives to manage their business risks 
and many of them will now be forced to clear their derivative 
transactions. This seems simple enough, until you realize that clearing 
does not make risk within the financial system disappear. Risk is 
simply transferred from the individual counterparties to the 
clearinghouses, a service provided at considerable expense in the form 
of margin posted to the clearinghouse. So this bill will not eliminate 
risk, but it simply transfers risk from one place to another and 
imposes costs on market participants who had nothing to do with 
creating the financial crisis. I truly fear that consumers will 
ultimately pay the price.
  For example, this legislation would force the farm credit system 
institutions to run their interest rate swaps through a clearinghouse 
which will result in additional costs in the form of higher interest 
rates to their customers without doing anything to lessen the systemic 
risk. Let me be clear as to who this will ultimately affect. It is very 
clear that our farmers and ranchers, our electric cooperatives, and our 
ethanol facilities which seek financing from these institutions will 
bear this burden.
  Institutions such as Cobank will be forced to clear their swaps and 
execute them on a trading facility which will impose significant new 
costs and result in higher rates for their customer, or, worse, 
discourage them from managing their risk which will again result in 
higher costs for their borrowers. And why? Because this legislation 
broadly applies regulation, treating all financial institutions the 
same. Cobank and Goldman Sachs are not the same and should not be 
regulated in the same manner. Cobank should have the option to clear 
their swaps, not be mandated to do so.
  While the conference report provides an exemption for some businesses 
from this derivative clearing mandate, it also imposes new margin 
requirements on derivative dealers for these same uncleared 
transactions. Who will likely pay for these new margin requirements in 
the form of higher fees? Again, it is pretty clear the public and 
private companies across the Nation that had nothing to do with the 
financial crisis and that are simply seeking to minimize risk will bear 
this burden. The entire point of exempting some of them from the 
clearing mandate was to ensure that they do not bear the burden of 
increased margin costs, but this language would indirectly subject 
these businesses to the expense of margins imposed on their dealer 
counterparties--counterparties that will be forced to recoup this cost 
in the form of fees, and businesses will be forced to pass their costs 
on to consumers.
  I encourage all Members of this body to look at yesterday's Wall 
Street Journal. There is a front-page story on derivatives. When we 
come to the floor and start debating derivatives, most people's eyes 
glaze over because it is complex and an issue that is very difficult to 
understand. But in that article it explains the simplicity that the 
derivatives world imparts itself in. The article goes through a process 
of a farmer in Nebraska and his use of derivatives; then his ultimate 
purchaser of his product--the rancher--and how that rancher uses 
derivatives to eliminate risk and hopefully guarantee a profit in his 
business. Then it describes how the slaughterhouse takes the product 
from the livestock operator, the

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market operator, and uses derivatives in their business; and then 
ultimately the guy who owns the trucking company and how he uses 
derivatives. It is very clear in this article that these guys' lives 
are going to change from a business perspective. They are not going to 
be able to use derivatives in the way they used them before. They had 
nothing to do with the financial crisis that developed in this country.
  Also related to derivatives were considerable improvements made to 
the so-called ``swap desk push out'' provision. I commend the chairman 
for his work on that. Banks would be able to continue to engage in 
interest rate and foreign currency swaps which is essential to the 
business of banks. However, I remain concerned that forcing swap dealer 
banks to spin off their commodity trading will hurt those utilities and 
airlines wishing to hedge their energy risks in the immediate future. 
They will be forced to establish new credit ratings and standings with 
these affiliates rather than take advantage of their longstanding 
relationship with their current bank. I fail to understand why forcing 
these entities to spin off any aspect of their swap business is 
necessary.
  I wholeheartedly support efforts to make the swaps market more 
transparent. It needs to be. I believe this will be accomplished once 
regulators have access to the data which has to date been completely 
unavailable to them. The public will benefit from knowing who is 
participating in these markets, and we will finally have the data we 
need to make informed policy decisions related to derivatives.
  Our economy needs more opportunities for all businesses to grow and 
prosper. Time and again, it is the small- and medium-sized businesses 
that create the lion's share of jobs after a major economic recession. 
We need to foster and incubate these small- and medium-sized businesses 
right now and not hamper them. We need to ensure they are able to 
access capital and manage their risk through the use of derivatives. 
Right now, there are a lot of these small- and medium-sized companies 
that are ready to expand but cannot get adequate access to capital 
because lenders are saying it is too risky and regulators won't allow 
these lenders to help.
  So I believe there is a need to respond to what went wrong in our 
financial system and I support doing so in a responsible way that will 
continue to allow Main Street businesses to manage their risk 
appropriately, hold those responsible for this mess accountable, and 
not create huge new government bureaucracies. Unfortunately, this 
legislation falls short of these goals.
  I am pleased the chairman of the Banking Committee is here, because I 
do want to say publicly--and I have told him this privately and I will 
continue to say it--that he had a very difficult job, and while we 
disagreed on a lot of major issues, he was always open for discussion. 
He allowed participation on the floor as well as discussions off the 
floor, and for that I thank him. He knows that I obviously cannot vote 
for this bill, but he has proven himself to be a very valued Member of 
the Senate by the way he has conducted himself throughout this whole 
process, and for that I thank him.
  I yield the floor.
  Mr. DODD. Madam President, before my colleague leaves the floor, let 
me thank him as well. Of course, hope always springs eternal. The vote 
hasn't occurred yet, so we never know. We might get his vote yet.
  I don't serve on the Agriculture Committee with him. Senator 
Chambliss was a very valued member of this conference. Obviously, a lot 
of work took place in the Agriculture Committee dealing with areas of 
the bill that he has spent several minutes talking about. He raises 
very good points. I would be the last person to suggest as a coauthor 
of the bill that we have crafted the perfect piece of legislation. As 
he points out, these are highly complicated areas. One of the reasons 
we tried not to write a series of regulations far beyond the competency 
of those of us in this Chamber is because it is complicated. Obviously, 
we have delegated the ultimate responsibility that we now have, which 
is to watch, the oversight, to the regulatory community, to make sure 
they do this right.
  I pointed out yesterday, and he has pointed out again today, when we 
get into a situation such as this crisis, certain words become 
pejorative, and ``derivatives'' unfortunately has become that, and it 
shouldn't. These are very critical components for capital formation, 
job growth, and wealth in our country. Hedging against risk is 
absolutely essential. So they are vitally important elements in our 
economy. I hope people, when they hear the word ``derivative'' being 
spoken won't assume this is somehow a bad idea. One almost gets the 
sense that people feel that way. I don't at all.
  I look forward in the coming weeks and months, as regulators begin to 
work with this bill if, in fact, it passes, that we will do that. A lot 
of the record has been established in this area, and through no small 
measure due to the Senator from Georgia, and I thank him for his work 
as well.
  Madam President, I yield the floor.
  Madam President, I note the absence of a quorum, and I ask that the 
time be equally divided on both sides.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.
  The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. SHELBY. Madam President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.
  Mr. SHELBY. Madam President, I rise today to offer some remarks on 
the Dodd-Frank regulation conference report, which is now before the 
Senate.
  Nearly 2 years ago, the financial crisis exposed massive deficiencies 
in the structure and culture of our financial regulatory system. Years 
of technological advances, product development, and the advent of 
global capital markets rendered the system ill-suited to achieve its 
mission in the modern economy. Decades of insulation from 
accountability distracted regulators from focusing on that mission. 
Instead of acting to preserve safe and sound markets, the regulators 
primarily became focused on expanding the scope of their bureaucratic 
reach.
  After the crisis, which cost trillions of dollars and millions of 
jobs, it was clear that significant reform was necessary. Despite broad 
agreement on the need for reform, the majority decided it would rather 
move forward with a partisan bill. The result is the 2,300-page 
legislative monster before us that expands the scope and the power of 
ineffective bureaucracies. It creates vast new bureaucracies with 
little accountability and seriously undermines the competitiveness of 
the American economy.
  Unfortunately, the bill does very little to make our financial system 
safer. Therefore, I will oppose the Dodd-Frank bill and urge my 
colleagues to do the same.
  This was not a preordained outcome; it is the direct result of 
decisions made by the Obama administration. Had they sincerely wanted 
to produce a bipartisan bill, I have no doubt we could have crafted a 
strong bill that would garner 80 or more votes in the Senate. If the 
American people haven't noticed by now, that is not how things work 
under the Democratic rule.
  Unfortunately, the partisan manner in which this bill was constructed 
is not its greatest shortcoming. One would have assumed that the scope 
of the crisis--trillions of dollars lost and millions of jobs 
eliminated--would have compelled the Banking Committee to spend the 
time necessary to thoroughly examine the crisis and develop the best 
possible legislation in response. Unfortunately, such an assumption 
would be entirely unfounded. The Banking Committee never produced a 
single report on or conducted an investigation into any aspect of the 
financial crisis.
  In contrast, during the Great Depression, the Banking Committee set 
up an entire subcommittee to examine what regulatory reforms were 
needed. The Pecora Commission, as it came to be

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known, interviewed, under oath, the big actors on Wall Street and 
produced a multivolume report.
  Unfortunately, this time around, the Democratic-run committee gave 
Wall Street executives a pass, I believe. There were no investigations, 
no depositions, and no subpoenas. In fact, Chairman Dodd, my friend and 
colleague, never called on the likes of Robert Rubin and Lloyd 
Blankfein to testify before the Banking Committee. Not a single 
individual from AIG's financial products division was questioned by the 
committee or its staff. Although Congress did establish the Financial 
Crisis Inquiry Commission to do the work that the majority party, I 
believe, refused to do, the Commission's work will not be completed 
until the end of this year.
  Most amazingly, the Banking Committee didn't even hold a single 
hearing on the final bill before its markup. The committee never took 
the time to receive public testimony or survey experts about the likely 
outcomes the legislation would produce. We know the majority heard from 
Wall Street lobbyists, government regulators, and liberal activists, 
but they clearly decided they did not want the American people to have 
a chance to understand and comment on the bill before us today before 
it was enacted. The question is, Why? The majority knows that this bill 
is a job killer and will saddle Americans with billions of dollars in 
hidden taxes and fees. Allowing the public to weigh in on this bill 
would have spelled the end of the Democratic version of reform. I 
believe we owed more to those who lost their jobs, their homes, and 
their life savings. I believe this truly was a missed opportunity.
  The difference between what we needed to do, what we could have done, 
and what the majority has chosen to do is considerable. I will speak on 
this.
  Congress could have focused this legislation on financial stability. 
It could have utilized the findings of the Financial Crisis Inquiry 
Commission. Instead, the Democratic majority chose to adopt legislative 
language penned by Federal regulators in search of expanded turf. They 
chose to legislate for the political favor of community organizing 
groups and liberal activists seeking expansive new bureaucracies that 
they could leverage for their own political advantage. The result is an 
activist bill that has little to do with the recent or any crisis and a 
lot to do with expanding the government to satisfy special interests.
  Congress could have written a bill to address the problem of too big 
to fail once and for all. In fact, the Shelby-Dodd amendment began to 
address this problem right here on the floor. Unfortunately, the 
Democrats once again overreached at the eleventh hour and undermined 
the seriousness of our effort by emphasizing social activism over 
financial stability. Democrats insisted that the overall financial 
stability mission of the Financial Stability Oversight Council was less 
important than the political needs of certain preferred constituencies. 
This dangerous mixing of social activism and financial stability 
follows the exact same model that led us to the crisis in the first 
place; that is, private enterprise co-opted through political mandates 
to achieve social goals. Fannie and Freddie proved this combination can 
be highly destructive.
  Congress could have written legislation to address key issues known 
to have played a key role in the recent crisis. On the government-
sponsored enterprises, Fannie and Freddie, the bill is silent, aside 
from a mere study. On the triparty repo market, the bill is silent. On 
runs in money markets, the bill is silent. On the reliance of market 
participants on short-term commercial paper funding, the bill is 
silent. On maturity transformations that allowed the shadow banking 
system to effectively create money out of AAA-rated securities, thereby 
making the system much more vulnerable, the bill is silent. On the 
financial system's overall vulnerability to liquidity crises, the bill 
again is silent. We know with certainty that all of these factors--none 
of which is addressed in the bill--were integral to the recent 
financial crisis. While we don't want to write legislation that only 
deals with the last crisis, we do want to enact a law that addresses 
what we know were systemic problems. This bill fails to do so.
  Congress could have written a bill to streamline regulation and 
eliminate the gaps that firms exploit in a race to the regulatory 
bottom. This bill does the opposite by making our financial regulatory 
system even more complex. We will still have the Fed, FDIC, SEC, CFTC, 
OCC, and the remainder of the regulatory alphabet soup. In fact, most 
of the existing regulators that so recently failed us have been given 
expanded power and scope. This bill will also add new letters to the 
already-confused soup, such as the CFPB and the OFR. In addition to 
increased regulatory complexity, there will be new special activist 
offices within each regulator for almost every imaginable special 
interest.
  Congress could have set up reasonable new research capabilities in 
its new Stability Oversight Council to complement financial research 
performed by the Federal Reserve and others. Instead, the Democrats 
decided to establish the Office of Financial Research with an 
unconstrained director and a focus on broad information collecting and 
processing.
  I believe this office will not only fail to detect systemic threats 
in the asset price bubbles in the future, it will threaten civil 
liberties and the privacy of Americans, waste billions of dollars of 
taxpayer resources, and lull markets into the false belief that this 
new government power will protect the financial system from risky 
trades.
  Congress could have been transparent in identifying the bill's fiscal 
effects and costs. Instead, the majority wrote a bill that hijacks 
taxpayer resources but hides that fact from public view. Just as the 
administration refuses to acknowledge trillions of dollars of 
contingent taxpayer liabilities residing with Fannie and Freddie, this 
bill refuses to provide Americans with a transparent view of the costs 
of the new multibillion-dollar consumer protection bureaucracy.
  According to the report on the bill offered by the majority, the 
consumer bureaucracy's budget is ``paid for by the Federal Reserve 
System.'' Make no mistake, ``paid for by the Fed'' means paid for 
ultimately by the taxpayers.
  Taxpayers will be on the hook for billions of dollars of unchecked, 
unencumbered, and unappropriated spending financed by the inflationary 
money printing authority of the Federal Reserve which will be hidden 
from the American people in the arcane Federal budget.
  Congress could have also used this legislative opportunity to begin 
the process of reforming the failed mortgage giants Fannie and Freddie, 
whose ever growing bailouts have no upper limit. When it became clear 
that this was not the intention of the Democrats, Republicans sought to 
address the current and worsening conditions of the GSEs.
  We suggested establishing taxpayer protections, such as portfolio 
caps, on the mortgage giants. We recommended making the cost of Freddie 
and Fannie bailouts transparent to the public; that is, to the 
taxpayer. We offered initial steps toward the inevitable unwinding of 
these failed institutions. Yet at every turn, the Democratic majority 
blocked Republican efforts to establish at least a foundation for 
reform.
  The Democratic-preferred approach in this bill to reforming the 
mortgage giants is a study. Let me repeat that notion. In order to 
address a bailout that has already cost American taxpayers roughly $150 
billion to date, with unlimited future taxpayer exposure, the Democrats 
propose a study. It does not take a study to determine that $150 
billion in unlimited loss exposure needs to be addressed immediately--
now.
  Congress could have focused on securities market practices that were 
known to have contributed to systemic risks in our financial system. 
Instead, Democrats overreached once again.
  For example, the bill gives the Securities and Exchange Commission, 
which has failed to carry out its existing mandates, a new systemic 
risk mandate to oversee advisers to hedge funds and private equity 
funds. Yet no

[[Page 13141]]

one contends private funds were a cause of the recent crisis or that 
the demise of any private fund during the crisis resulted in a 
systemwide shock.
  Congress could have acted to curtail Wall Street's speculative 
excesses and enhance Main Street's access to credit. But instead, in 
this bill large financial firms on Wall Street seem to have benefited, 
judging by the behavior of the stock prices, while the legislation 
almost surely will increase uncertainties and costs for Main Street and 
America's job creators.
  The actual provisions in the bill will benefit big Wall Street 
institutions because they substantially increase the amount and cost of 
financial regulation. Only large financial institutions will have the 
resources to navigate all of the new laws and regulations that this 
legislation will generate. As a result, this bill, disproportionately 
will hurt small and medium-sized banks which had nothing to do with the 
crisis.
  While the largest financial institutions will get special regulation 
under this bill, the unintended result will be lower funding costs for 
these firms. That will benefit the big banks and hurt the small banks. 
Therefore, this bill will result in higher fees, less choice, and fewer 
opportunities to responsibly obtain credit for blameless consumers.
  Moreover, this bill raises taxes which, as we all know, are 
ultimately borne by consumers. Make no mistake, when Wall Street writes 
a check to pay its higher taxes, the ones who end up paying those taxes 
are American consumers and workers.
  Congress could have written legislation for consumer protection that 
respects both American consumers and the need for safety and soundness 
in our financial system.
  Instead, the Dodd-Frank bill was basically constructed by architects 
in the Treasury Department who have a certain condescension for 
American consumers and their choices.
  The ultimate goal is to substitute the judgment of a benevolent 
bureaucrat for that of the American consumer, thereby controlling 
consumer behavior without regard for the safety and soundness of our 
banking system.
  The American people are being told not to worry, however, because it 
is all being done for their own good.
  While a consumer protection agency might sound like a good idea, the 
way it is constructed in this bill will slow economic growth and kill 
jobs by imposing massive new regulatory burdens on businesses, large 
and small. It will stifle innovation in consumer financial products, 
and it will reduce small business activity. It will lead to reduced 
consumer credit and higher costs for available credit.
  Less credit at higher price will dampen the very small business 
engines of job creation that our economy desperately needs right now. 
That is a price I am not willing to pay.
  Congress could have implemented reforms to improve derivatives market 
activities. Instead, the bill's derivatives title seems to be inspired 
by a desire to be punitive or to provide short-term political support 
during an election, or both. Instead of imposing a rational and 
effective regulatory framework on the OTC derivatives market, the bill 
runs roughshod over the Main Street businesses that use derivatives to 
protect themselves every day.
  The Dodd-Frank bill will increase companies' costs and limit their 
access to risk-mitigating derivatives without making our financial 
system safer in the process. As a result, there will be fewer 
opportunities for businesses to grow, fewer jobs for the unemployed, 
and higher prices for consumers.
  Congress could have written a bill to put an end to overreliance on 
credit agencies and underreliance on their own due diligence. Instead, 
the Dodd-Frank bill sets up new regulations and liability provisions to 
give the impression that ratings are accurate. It then takes a 
contradictory direction and instructs regulators to replace references 
to ratings with other standards of creditworthiness.
  To make matters even more confusing, the bill also provides for the 
establishment of a government-sponsored body that will select a credit 
rating agency to perform an initial rating of a security issue.
  I anticipate the net effect of these conflicting provisions will be a 
reduction of competition among credit rating agencies. Potential 
competitors either will be deterred by all of the new regulatory 
requirements or be destroyed by the liability provisions set up in the 
bill. The lack of competition led to poor quality ratings in the runup 
to the crisis. This bill perpetuates and, in fact, worsens that 
problem.
  Congress could have eased regulatory burdens on small and medium-
sized businesses not integral to the recent crisis or any crisis. 
Instead, Main Street corporations will be subject to a panoply of new 
corporate governance and executive compensation requirements.
  These new requirements will be costly and potentially harmful to 
shareholders because they empower special interests and encourage 
short-term thinking by managers. These features were included solely 
for the purpose of appeasing unions and other special interest 
lobbyists, and there is no demonstrated link between these changes and 
the enhanced stability of our financial system or improved investor 
protection.
  We are getting toward the end. Congress could have held hearings or 
analyzed a number of changes this bill makes to the securities laws. 
Instead, dramatic changes in those laws were written with little 
discussion and no analysis.
  Throughout this process, there has been a lot of talk about the 
influence of Wall Street over this bill. To be sure, in the early 
stages of the negotiations, Wall Street and the big banks were very 
engaged.
  I think the American people know, however, that in the end, the real 
influence peddlers on this bill were not Wall Street lobbyists but 
rather liberal activists and Washington bureaucrats. Wall Street and 
the big banks just happen to be the incidental beneficiaries of their 
success.
  When Chairman Dodd and I began this process, we agreed that the 
bureaucratic status quo was unacceptable and that radical change was 
necessary. With that in mind, we agreed to consolidate all the 
financial regulators and constrain the Fed to its monetary policy role.
  This was not a result the big banks wanted. The last thing a large 
regulated financial institution wants is a new regulator. After all, 
they spent years and millions of dollars developing a relationship with 
our current regulators.
  A major regulatory reorganization would seriously upset the status 
quo and cost them a great deal of money. Neither Chairman Dodd nor I 
were persuaded, however. Change was necessary and change was going to 
come.
  Unfortunately, that vision of reform began to die as the bureaucrats 
and the liberal left began to exercise their influence over the bill. 
When it became apparent that I was not willing to embrace the left's 
expansive consumer bureaucracy, it also became apparent that actual 
regulatory reform was not what the majority was seeking.
  All other serious reform was scuttled by the Democrats in defense of 
the new consumer bureaucracy. That was the point at which Chairman Dodd 
and I began to seek a new negotiating partner, ultimately to no avail.
  As the Fed and the other regulators began to regain their foothold 
with the Democrats and the administration and the activist left 
consolidated its support around an expansive new bureaucracy, all the 
Democrats will succeed in doing, with the help of a few Republicans, is 
give the failed bureaucracies more power, more money, and a pat on the 
back with the hope they will do a better job next time.
  That is not real reform. That is just more of the same.
  We had an opportunity to lead the world by creating a modern, 
efficient, and competitive regulatory structure that will serve our 
economy for years to come. Instead, I believe we squandered that 
opportunity by barely expanding our obsolete, inefficient, and 
uncompetitive system. To make it even worse, they have added to the 
bureaucratic morass several more unrestrained and unaccountable 
agencies.

[[Page 13142]]

  It became apparent early on to me that the administration and the 
Democratic majority were not interested in regulatory reform. All they 
were trying to do is exploit the crisis in order to expand government 
further and reward special interests.
  The Dodd-Frank bill will not enhance systemic stability. It will not 
prevent future bailouts of politically favored institutions and groups 
by the government.
  The bill serves only to expand the Federal bureaucracy and the 
government control of the private sector. It will impose large costs on 
the taxpayers and businesses.
  For these reasons, I urge my colleagues to reject this bill.
  The ACTING PRESIDENT pro tempore. The Senator from Connecticut.
  Mr. DODD. Madam President, I thank my colleague from Alabama. Once 
again--I say this with the respect--I feel as if I am listening to the 
first speech back in November when I offered the original proposal of 
this bill and wonder if we have been in the same Chamber and same city 
over the last several years.
  I am not going to use the time between now and 11 a.m. when we are 
going to vote on the cloture motion. I will not go through the long 
list, page after page of amendments that were adopted as part of this 
bill offered by my good friends on the minority side.
  We had 80 hearings held over 2 years, with countless efforts to reach 
out and bring in people. One can make a lot of accusations about the 
bill, but this was a very inclusive process. Half the amendments 
adopted on the floor in this Chamber during consideration of this 
legislation over 4 weeks were ones offered by the minority and were 
accepted and bipartisan amendments. There was never an alternative 
offered. There was never a substitute offered. It was a question of 
whether people wanted to amend this legislation.
  It is not a perfect bill, I will be the first to admit. We do not 
know ultimately how well the ideas we incorporated will achieve the 
results we all desire. It will take the next economic crisis--as 
certainly it will come--to determine whether the provisions of this 
bill will provide this generation or the next generation of regulators 
with the tools necessary to minimize the effects of that crisis when it 
happens. But we believe we have done the best we could under the 
circumstances to see to it we never have another bailout of another 
major financial institution at taxpayer expense.
  In fact, it was the Shelby-Dodd amendment adopted in this Chamber--it 
was the second amendment we considered--that actually completed the 
process of seeing to it there would be bankruptcy or resolution of 
financial institutions that got themselves into so much trouble that 
they put the entire system at risk. We set up an oversight council to 
make sure we could observe what was occurring not only here at home but 
around the globe--matters such as Greece or Spain that could put our 
economy at risk. So it isn't just one set of eyes but having those 
responsible for seeing to it that our economy remains safe and sound 
have the opportunity to provide the early warning that never occurred.
  We didn't need a Pecora Commission to find out what was going wrong. 
We had mortgages being sold in this country to people who couldn't 
afford them, marketing them in a way that guaranteed failure, 
securitizing them so they could be paid and then skipping town in a 
sense. I didn't need to have hours of hearings to find out what was the 
cause of it. The question was, How do we try to put a system in place 
to minimize the future kind of risks our Nation would face. It wasn't 
just to deal with those who created the problem but, rather, to look 
ahead--not in a punitive way--and to set up an architecture and 
structure to allow us to get to that point where we could be confident 
we were addressing these issues.
  Thirdly, of course, we tried to deal with exotic instruments that had 
caused so much of the difficulty. The derivatives market was a $90 
billion market, and it mushroomed in less than a decade to $600 
trillion, putting our Nation at risk because of a lack of transparency 
and accountability to determine what was occurring in those markets. To 
consider it a radical idea that we might want to have accountability 
and transparency I find remarkable considering what our country has 
been through.
  Also, we provided a consumer protection bureau. What a radical idea 
that is--the idea that people who buy mortgages or have a student loan, 
a credit card, a car loan, might have someplace in this city that 
watches out for them so their jobs, their homes, their retirement 
accounts are not lost. So while this bureau is in place in this bill, 
the idea was at least to see to it that people, when they have the 
problems they have been through or are going through, someone is 
watching out for them.
  We have a Consumer Product Safety Commission to address the purchase 
of a faulty product, but what happens when someone abuses or takes 
advantage, as happens in so many cases in financial areas? People 
should have a chance to have a redress of their grievance or to at 
least from the outset have an opportunity to address that before it 
becomes a broader problem.
  So, Madam President, again, we have debated this now for 2 years and 
countless opportunities. We spent 4 weeks on the floor of this Chamber, 
amendments were offered, and never once--I guess on one occasion we had 
a supermajority vote. There was only one tabling motion I know of. I 
did everything I could to make this as inclusive a process as possible.
  I understand some people don't like the bill. It saddens me, in a 
way, that it has once again become sort of a mindless partisan argument 
rather than talking about what we need to be doing. This is not the end 
of all of it, obviously. Oversight will be required, consultation in 
the coming weeks and months and years, to make this work well. But, 
Madam President, I can't imagine another process that has been as 
inclusive.
  My colleagues will recall that almost 10 months, going on almost a 
year ago, I invited both Democrats and Republicans on the Banking 
Committee to assume responsibility for major sections of this bill, 
which they did do, by the way, and made a significant contribution to 
the product. So while I respect those who want to vote against the 
bill, and that is their right to do so, find some arguments based on 
the merits rather than arguing about whether there was a process that 
was inclusive or that allowed people the opportunity to be heard.
  Again, we have the right to be heard, but we don't have the right 
necessarily to have our ideas become the law of the land. That is what 
a body like this is for.
  So this is a major undertaking, one that is historic in its 
proportions, and it is an attempt to set in place a structure that will 
allow us to minimize problems in the future. I can't legislate 
integrity. I can't legislate wisdom. I can't legislate passion or 
competency. What we can do is to create the tools and the architecture 
that allow good people to do a good job on behalf of the American 
public. That is what a bill like this is designed to do.
  I regret I can't give jobs back, restore foreclosed homes, or put 
retirement monies back into accounts. What I can do is to see to it 
that we never, ever again have to go through what this Nation has been 
through. That is what this effort has been about over the last several 
years, to try to create that structure, that architecture. It will be 
incumbent now on the present administration and those who follow to 
nominate good people to head up these operations, to attract good 
public servants who will fill the jobs of these various regulatory 
bodies to see to it that they do the work we all want them to do.
  Again, I can't legislate that. I can merely create the opportunity 
for that kind of protection to occur--to modernize a financial system, 
to lead the world, if we can, in harmonizing rules so we don't have the 
kind of sovereign shopping that was going on with regulatory bodies, 
where major financial institutions would shop around the world as to 
the nation of least resistance or the regulator of least resistance.

[[Page 13143]]

  We need to see to it that we have the unanimity or at least the 
harmonization of rules that will allow us to have a more orderly system 
in our globe because, as we have all painfully learned, matters that 
occur thousands of miles away can affect the economy in our own 
country.
  So for all those reasons, Madam President, I thank my colleagues for 
their efforts over the last 2 years. I thank the leadership for 
providing the opportunity and time for us to do this in this Chamber. I 
thank my colleague in the House, Barney Frank, and his colleagues for 
the work in which they engaged in order to produce a bill there. We 
spent 2 weeks, some 70 hours of debating the conference report, where 
more amendments were adopted--again, offered by my colleagues, 
Republicans and Democrats--to make this as good a bill as we could in 
all of this.
  So with that, Madam President, I will reserve some comments for 
later, but as we approach this vote in the next few minutes, I urge my 
colleagues to invoke cloture, to allow us to then have an up-or-down 
vote on this bill, and to do what we can to restore some trust and 
confidence and optimism for the American people. In the midst of the 
worst economic crisis in the lives of most Americans, this 
institution--the Senate--rose to the occasion and crafted a bill to 
address the financial service structure of our Nation to once again 
give us the hope that we can see wealth created, jobs produced, and an 
economy that will offer opportunities for the next generation of 
Americans.
  I urge my colleagues to support the cloture motion, and I urge them 
to support the bill when the vote occurs later today.
  I yield the floor.
  The ACTING PRESIDENT pro tempore. The Republican leader.
  Mr. McCONNELL. Madam President, later today, we will have a decisive 
vote on the financial regulatory bill that does nothing to reform the 
government-sponsored enterprises that many people believe to have been 
at the root of the financial crisis this bill grew out of--a bill that 
was meant to rein in Wall Street but which is now supported by some of 
Wall Street's biggest banks and opposed by small community banks in my 
State; a bill that is meant to help the economy but which is widely 
expected to stifle growth and kill more jobs in the middle of a deep 
recession; and a bill that, according to the papers, the vast majority 
of Americans simply don't think will work.
  As it turns out, the American people don't seem to like this 
government-driven solution to the financial crisis any more than they 
liked the Democrats government-driven solution to the Nation's health 
care crisis. They do not think this bill will solve the problems in the 
financial sector any more than they think the health care bill will 
lead to lower costs or better care. One survey this week indicates that 
7 in 10 Democrats have little confidence the proposals in this bill 
will avert or lessen the impact of another financial catastrophe, and 
nearly 70 percent of them doubt it will make their savings more secure.
  It is easy to see why. The Wall Street Journal calls this bill's 
2,300 pages ``the biggest wave of new Federal financial rulemaking in 
three generations.'' The chairman of the Banking Committee has famously 
said last month we would not know how this bill works until it is in 
place. But here are some initial indicators about its scope according 
to a study by the U.S. Chamber of Commerce on the new bureaucratic 
landscape under this bill: 70 new Federal regulations through the new 
Bureau of Consumer Financial Protection, 54 new Federal regulations 
through the U.S. Commodity Futures Trading Commission, 11 new Federal 
regulations through the Federal Deposit Insurance Corporation, 30 new 
Federal regulations through the Federal Reserve, and 205 new 
regulations through the Securities and Exchange Commission.
  Those are just some of them. All told, this bill would impose 533 new 
regulations on individuals and small businesses, regulations that will 
inevitably lead to the kind of confusion and uncertainty that will make 
it even harder for struggling businesses to dig themselves out of the 
recession. It is just this kind of uncertainty that will deter lending 
and freeze up credit as lenders wait to see how they will be affected 
by the new regulations. It is just this kind of uncertainty that 
businesses cite time and time again as one of the greatest challenges 
to our economic recovery.
  So here is a bill that fails to address the root causes of the kind 
of crisis it is meant to prevent, that creates a vast new unaccountable 
bureaucracy, that--if past experience is any guide--will lead to 
countless burdensome, unintended consequences for individuals and small 
businesses; a bill that constricts credit and stifles growth in the 
middle of the worst economic period in memory; and perhaps most 
distressing of all, a bill that punishes farmers, florists, doctors, 
retailers, and countless others across the country and far away from 
Wall Street who had absolutely nothing to do with the panic of 2008.
  In other words, once again, the administration and its Democratic 
allies in Congress have taken a crisis and used it rather than solving 
it. How else can you explain the fact a bill that was meant to address 
the excesses on Wall Street is expected to hit individuals and 
industries that had nothing to do with the crisis it was meant to 
prevent?
  Did anybody think when this bill was first proposed that it would end 
up hurting storefront check cashers, city governments, small 
manufacturers, home buyers, credit bureaus, and farmers in places such 
as Kansas and Kentucky?
  This is precisely the kind of thing Americans are tired of--a 
government simply out of control. Only in Washington would you create a 
commission aimed at looking into the causes of a crisis, then put 
together and pass a 2,300-page bill in response to that crisis before 
the commission even has a chance to report its findings and issue 
recommendations. The White House will call this a victory. But as 
credit tightens, regulations multiply, and job creation slows even 
further as a result of this bill, they will have a hard time convincing 
the American people this is a victory for them.
  Obviously, I will be opposing this bill, and I would encourage my 
colleagues to oppose it as well.
  Madam President, I yield the floor.
  Mr. DODD. Madam President, I suggest the absence of a quorum, and I 
ask unanimous consent the time during the quorum be equally charged to 
both sides.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.
  The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. REID. Madam President, I ask unanimous consent the order for the 
quorum call be rescinded.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.
  Mr. REID. Madam President, the Wall Street earthquake that sent shock 
waves around the world has not hit anywhere as hard as it hit Nevada. 
You can draw a straight line from unchecked greed on Wall Street to the 
collapse of the housing market on Main Streets throughout my State and 
around the country. As soon as the big banks went down, foreclosure 
signs went up.
  How did this happen? Let's put it this way: When you go to any of the 
great casinos across Nevada and put your chips on the table, you are 
gambling with your own money. If you win, you win, and if you lose, you 
lose. But Wall Street rigged the game. They put our money on the table. 
When they won, they won big. The jackpots they took home were in the 
billions. And when they lost--and, boy, did they lose--they came crying 
to the taxpayers for help. The winnings were theirs to enjoy but the 
losses were all of ours, to share and to shoulder.
  That is the way the market worked. It worked for a few fortunate ones 
in the big firms and worked against everyone else. So when I say that 
is how the market worked, what I mean is that it didn't work at all. It 
was badly broken and it nearly bankrupted us. It

[[Page 13144]]

cost 8 million workers their jobs, millions of retirees their savings, 
and millions of families their homes. It shattered our faith in our 
financial system.
  But there is another problem. We have been talking about this rigged 
system, this raw deal, in the past tense, but it is not a thing of the 
past. It is very much in the present. The rules that allowed Nevada's 
economy to collapse are still the same rules of the road today. That 
means every new day we do not act we run the risk of it happening all 
over again. That is a gamble I am not willing to take.
  The bill before us makes sure we do not have to take that gamble. The 
first question was, How did this happen? The next question is, What are 
we going to do about it?
  No. 1, we are saying to those who gamed the system that the game is 
over. We are cracking down on those who gambled away what so many have 
worked so hard to put away.
  No. 2, we are saying to the families and taxpayers, never again will 
you be asked to bail out a big bank when the bank loses its risky bets.
  Let me say that again because it is one of the most important parts 
of this bill: No more bailouts because no bank is too big to fail. We 
are going to give consumers and investors the strongest protections 
they have ever had against abusive banks, mortgage companies, credit 
card companies, and credit rating agencies. We are going to bring 
derivative markets that operate in the darkness out into the light. We 
are going to hold Wall Street accountable because we know we are 
accountable to the American people. This is about our ability to trust 
our financial system, it is about giving families the peace of mind 
they deserve, the peace of mind that comes with the knowledge they will 
be able to keep their homes and their savings will be safe.
  We need a free market to thrive and grow and succeed. We acknowledge 
that. But there also have to be some rules, not to stifle but to 
safeguard us; rules so that when these firms fail they don't bring us 
down with them.
  When this earthquake hit there was not nearly enough oversight, 
transparency, or accountability to shield us from the fallout. This law 
will change that. It will strengthen all three.
  We are at the finish line this morning but getting here has not been 
easy. Wall Street doesn't like this bill. Of course it doesn't. Why 
would they want us to change the system they rigged, the system that 
made them all rich? Their cronies in Washington don't like it either. 
The top Republican in the House very publicly said the plight of 
millions was as small and insignificant as an ant, an insect; 
foreclosures, homes underwater, jobs lost--like an ant. The head of the 
Republican party asked us to simply trust Wall Street to look after 
itself.
  We all know this crisis is enormous and we all know Wall Street is 
not going to reform itself. Rather than standing up for the taxpayers, 
those who are about to vote no are standing with the same bankers who 
gambled away our jobs and homes and our economic security in the first 
place. Just like their Wall Street friends, it seems our opponents care 
more about making short-term gains than they do about what is right for 
the economy in the long run. I think that is a mistake and I think it 
is a shame.
  This is not about dollars and cents only, it is about fairness. It is 
about justice. It is about making sure there is not a next time. It is 
about jobs. It is about rescuing our economy.
  I know Wall Street reform is complicated. There are not many people 
who know all the ins and outs of derivative trading and credit default 
swaps or mortgage-backed securities. But the principle before us is 
quite simple. It is not complicated at all. You either believe that we 
need to strengthen the oversight of Wall Street or you don't. You 
either believe we need to strengthen protections for consumers or you 
don't.
  Our choice today is between learning from the mistakes of the past or 
dangerously letting them happen all over again.


                             Cloture Motion

  The ACTING PRESIDENT pro tempore. The cloture motion having been 
presented under rule XXII, the Chair directs the clerk to report the 
motion to invoke cloture.
  The legislative clerk read as follows:

                             Cloture Motion

       We, the undersigned Senators, in accordance with the 
     provisions of rule XXII of the Standing Rules of the Senate, 
     hereby move to bring to a close debate on the conference 
     report to accompany H.R. 4173, the Wall Street Reform and 
     Consumer Protection Act.
     Harry Reid, Christopher J. Dodd, Charles E. Schumer, Sheldon 
     Whitehouse, Amy Klobuchar, Thomas R. Carper, Benjamin L. 
     Cardin, Jeff Merkley, Kay R. Hagan, John F. Kerry, Tom 
     Harkin, Jack Reed, Frank R. Lautenberg, Mark Begich, Barbara 
     Boxer, Mark R. Warner, Joseph I. Lieberman.

  The ACTING PRESIDENT pro tempore. By unanimous consent the mandatory 
quorum call has been waived. The question is, Is it the sense of the 
Senate that debate on the conference report to accompany H.R. 4173, 
Restoring Financial Security Act of 2010, shall be brought to a close?
  The yeas and nays are mandatory under the rule.
  The clerk will call the roll.
  The legislative clerk called the roll.
  Mr. KYL. The following Senator is necessarily absent: the Senator 
from Idaho (Mr. Crapo).
  The ACTING PRESIDENT pro tempore. Are there any other Senators in the 
Chamber desiring to vote?
  The yeas and nays resulted--yeas 60, nays 38, as follows:

                      [Rollcall Vote No. 206 Leg.]

                                YEAS--60

     Akaka
     Baucus
     Bayh
     Begich
     Bennet (CO)
     Bingaman
     Boxer
     Brown (MA)
     Brown (OH)
     Burris
     Cantwell
     Cardin
     Carper
     Casey
     Collins
     Conrad
     Dodd
     Dorgan
     Durbin
     Feinstein
     Franken
     Gillibrand
     Hagan
     Harkin
     Inouye
     Johnson
     Kaufman
     Kerry
     Klobuchar
     Kohl
     Landrieu
     Lautenberg
     Leahy
     Levin
     Lieberman
     Lincoln
     McCaskill
     Menendez
     Merkley
     Mikulski
     Murray
     Nelson (NE)
     Nelson (FL)
     Pryor
     Reed
     Reid
     Rockefeller
     Sanders
     Schumer
     Shaheen
     Snowe
     Specter
     Stabenow
     Tester
     Udall (CO)
     Udall (NM)
     Warner
     Webb
     Whitehouse
     Wyden

                                NAYS--38

     Alexander
     Barrasso
     Bennett (UT)
     Bond
     Brownback
     Bunning
     Burr
     Chambliss
     Coburn
     Cochran
     Corker
     Cornyn
     DeMint
     Ensign
     Enzi
     Feingold
     Graham
     Grassley
     Gregg
     Hatch
     Hutchison
     Inhofe
     Isakson
     Johanns
     Kyl
     LeMieux
     Lugar
     McCain
     McConnell
     Murkowski
     Risch
     Roberts
     Sessions
     Shelby
     Thune
     Vitter
     Voinovich
     Wicker

                             NOT VOTING--1

       
     Crapo
       
  The ACTING PRESIDENT pro tempore. On this vote, the yeas are 60 and 
the nays are 38. Three-fifths of the Senators duly chosen and sworn 
having voted in the affirmative, the motion is agreed to.
  Mr. DODD. Madam President, I am about to propose a unanimous-consent 
request that has been agreed to by the respective leaders.
  I ask unanimous consent that the postcloture time be considered 
expired at 2 p.m., with the time until then equally divided and 
controlled between Senators Dodd and Shelby or their designees; that 
during this period, if and when a budget point of order is raised 
against the conference report, then an applicable waiver of the point 
of order be considered made; that at 2 p.m., the Senate proceed to vote 
on the motion to waive the applicable budget point of order; that if 
the waiver is successful, without further intervening action or debate, 
the Senate vote on adoption of the conference report.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.
  Mr. DODD. I yield the floor.
  The ACTING PRESIDENT pro tempore. The Senator from New Hampshire.
  Mr. GREGG. Madam President, I rise to make a point of order that the 
Senator from Connecticut alluded to. We have rules around here we have 
set up to discipline ourselves on spending. Unfortunately, we 
consistently ignore and waive them. That is one of the reasons we have 
a $13 trillion debt. That is one of the reasons we will have a $1.4 
trillion deficit this year alone. This bill

[[Page 13145]]

violates those rules. This bill violates one of the sections of those 
rules which says that in any 10-year period, we shall not have more 
than a $5 billion effect on the deficit in a negative way; that we need 
to otherwise pay for what we are doing. Therefore, this bill does 
violate the Budget Act.
  If we are going to have any fiscal discipline around here--and we 
hear a lot of people talking about that--we should be living by the 
rules we have to assert fiscal discipline. Therefore, I make a point of 
order that the pending bill violates section 311(b) of S. Con. Res. 70 
of the 110th Congress.
  Mr. DODD. Madam President, pursuant to section 904 of the 
Congressional Budget Act of 1974 and the waiver provisions of 
applicable budget resolutions, I move to waive all applicable sections 
of that act and those budget resolutions for purposes of the pending 
conference report and ask for the yeas and nays.
  The ACTING PRESIDENT pro tempore. Is there a sufficient second?
  There appears to be a sufficient second.
  The yeas and nays were ordered.
  Mr. GREGG. I understand the vote will occur somewhere around 2 
o'clock.
  The ACTING PRESIDENT pro tempore. The Senator is correct.
  Mr. DODD. Madam President, I see my colleague from Texas is seeking 
recognition. I wish to publicly thank her. She made a substantial 
contribution to this bill on several amendments that were adopted 
during debate on the floor. I thank her for them. They added to the 
value of the legislation. I am not sure what her comments will be right 
now, but I thank her for her contributions.
  The ACTING PRESIDENT pro tempore. The Senator from Texas is 
recognized.
  Mrs. HUTCHISON. Madam President, I appreciate the comments of the 
chairman. He accommodated many of the amendments I had, particularly as 
it concerns community banks. That was a huge concern in the original 
draft of the bill. I thank the chairman for accommodating those 
concerns. It did make it a better bill.
  I wish to return to the aftermath of the financial crisis, when 
Congress was tasked with the responsibility of modernizing our 
financial regulatory structure so that we would have proper oversight 
of today's banking system and financial markets. We were called to fill 
in gaps in regulations which allowed American home buyers to simply 
sign on the dotted line to purchase a house that was in many instances 
beyond their means, to let companies hide trillions of dollars in 
assets from regulators, and ultimately led our government to lose 
hundreds of billions of taxpayer dollars to bail out financial 
institutions--Fannie Mae, Freddie Mac, GM, Chrysler, and AIG. Thus, 
were financial regulatory reform to succeed, we needed to enhance 
mortgage underwriting standards, bring greater transparency to the 
derivatives markets, and once and for all end too big to fail. The 
conference report before us takes steps toward these goals.
  The legislation puts in place measures to address too big to fail; 
however, it falls short in fully addressing the risk of future 
government bailouts by failing to make changes to the Bankruptcy Code. 
In this legislation, we have also made strides to strengthen mortgage 
underwriting standards.
  I am concerned that a newly formed Consumer Financial Protection 
Bureau will take the lead rather than our banking regulators, and this 
is one of the biggest concerns I have with the bill.
  I am pleased that the conference report includes numerous measures 
for which I fought. I thank Chairman Dodd for his willingness to work 
with me and his constructive approach to making changes to the bill, 
including a more level playing field for community banks across the 
country to compete through my amendment to bring parity to FDIC 
insurance assessments; my amendment, along with Senator Klobuchar, to 
allow State-chartered banks and small and medium-size bank holding 
companies to retain Federal Reserve supervision so that our monetary 
policy truly reflects economic conditions throughout the country, not 
just on Wall Street; relief for small and medium-size public companies 
from the burden of rule 404(b) of Sarbanes-Oxley; and assurance that 
the Volcker rule's proprietary trading restrictions will not extend to 
the insurance affiliates of insurance companies with depository 
institutions. These are positive changes for which I give the chairman 
great credit. However, these positive changes are greatly outweighed by 
misplaced priorities to create new layers of bureaucracy while failing 
to address the root causes of the financial crisis--Fannie Mae and 
Freddie Mac.
  Additionally, there are a series of provisions that are troubling to 
me. No. 1 is this consumer protection bureau. It is using the faults of 
Wall Street banks and executives to create a cumbersome new bureaucracy 
which will impose job-killing regulation at the expense of Main Street 
small businesses and families. The Consumer Financial Protection 
Bureau, with endless authority over all facets of our economy, is not 
the answer.
  I am particularly concerned about the effect this bureau will have on 
well-regulated, safe, sound community banks. These banks largely 
avoided the subprime market, and they didn't engage in the risky 
speculative trades that contributed to the financial meltdown. However, 
these community banks are going to have 27 new or expanded types of 
regulation after this bill is passed. The consumer bureau could 
ultimately determine what products community banks can offer, on what 
terms they can offer these products, and under what settings and 
circumstances. Overall, the consumer bureau will result in fewer 
products and services for American families and small businesses.
  The Texas Bankers Association tells me consumer bureau rules could 
result in the end of free checking accounts, higher fees on all 
consumer services, and less opportunity to negotiate on loans. It is 
not the big banks on Wall Street voicing concerns and opposition to 
this bill. The opposition is coming from community bankers in Texas who 
are worried they will be unduly penalized for faults they did not 
commit.
  Small businesses are also against this new consumer bureau. The U.S. 
Chamber of Commerce and the National Federation of Independent Business 
are very concerned about this bureau.
  We need community banks to continue extending credit to worthy 
families looking for a home and to small businesses to invest in and 
create jobs. I cosponsored an amendment during Senate consideration to 
ensure that safety and soundness regulators would have a say in the 
rules and regulations imposed on their institutions. That amendment was 
rejected, leaving community banks subject to this new bureau's 
unlimited and unchecked rulemaking authority.
  I am also concerned with the treatment of derivatives in this 
legislation. I am concerned that the lack of transparency that needed 
reform has been exchanged for a regulation I do not think is going to 
properly regulate derivatives.
  However, we must also protect end users such as airlines, utilities, 
manufacturers, and oil and gas companies. These companies use 
derivatives as a cost effective strategy to control price and risk. 
Many structure derivatives contracts are unique to their business, 
making it difficult to clear and trade on a market. I share concerns 
from derivatives end users that this mandate to post margins with cash, 
rather than collateral, will remove capital from investment and job 
creation.
  While Senator Dodd and Senator Lincoln say that this legislation will 
not impose margin requirements, I worry that there is not a statutory 
exemption for end users. End users may even choose market volatility 
instead of risk-controlling derivatives altogether, exposing Americans 
to higher prices, slower economic growth, and more job losses.
  We should seek transparency through greater reporting requirements, 
but businesses should not be forced to arbitrarily move money to margin 
accounts.
  I am concerned that this legislation will cost more jobs at a 
particularly

[[Page 13146]]

harmful time with national unemployment hovering around 10 percent. The 
Chamber of Commerce reports that the margin requirement on OTC 
derivatives could cost 100,000 to 120,000 jobs in S&P 500 companies 
alone.
  This legislation does nothing to rein in Fannie Mae and Freddie Mac. 
Since the government takeover of these two GSEs, taxpayers have paid 
$145 billion to keep them afloat. The CBO reports that the government's 
cost to bail out Fannie and Freddie will eventually reach $381 billion.
  These costs contributed to a Federal deficit which has topped $1 
trillion for the first 9 months of fiscal year 2010. They have helped 
push our national debt to $13 trillion. A couple of weeks ago, the CBO 
reported that United States debt will reach 62 percent of GDP by the 
end of this year, the highest since just after World War II. We cannot 
continue to this dangerous path and mirror the crisis that currently 
ravages Europe.
  We cannot sustain these debts and deficits. We offered solutions to 
rein in Fannie Mae and Freddie Mac. During Senate consideration of this 
legislation, I cosponsored amendments--No. 3839 and No. 4020--which 
would have re-imposed the cap of Federal assistance to the GSEs at $200 
billion each. These amendments would have brought Fannie Mae and 
Freddie Mac onto our budget so that Americans could see their true 
cost. And they would have brought an end to Fannie and Freddie's 
government conservatorship in 2 years. Unfortunately, these amendments 
were rejected. Furthermore, the conference committee would not even 
permit amendments to be offered on the GSEs. Instead, this legislation 
calls for a report, punting the plan for Fannie and Freddie that we 
need to the future. We need reform of Fannie Mae and Freddie Mac now, 
but this legislation does not even allow for debate of the GSEs.
  The American people are frustrated with our government, and this 
legislation is an example of why. Under the guise of financial 
regulatory reform, this legislation continues the unprecedented growth 
in government.
  The American people want sensible financial reform. However, this 
purported financial regulatory reform legislation does not even address 
the root causes of the crisis: Fannie Mae and Freddie Mac. Instead, it 
uses the crisis to add layers of Federal bureaucracy, and threatens to 
slow down our economic recovery, risking job loss and restricting 
access to credit.
  For these reasons, this legislation is not the reform we need, which 
is why I must oppose the conference report for H.R. 4173.
  We need to fully look at some of the concerns in this bill with the 
hope that when it passes--I cannot support it, but it will pass--these 
cautions will be looked at going forward to perhaps, when the problems 
come to light later, make some changes to the law that will better 
accommodate the needs of consumers and small businesses and community 
banks in the country.
  There are good parts of this bill. I think the chairman deserves a 
lot of credit for pushing this financial reform, knowing that we needed 
to do it. I don't think it fully meets the test of doing what we should 
be doing, but I do think it is a first step, and the chairman is to be 
commended for his leadership.
  I yield the floor.
  The ACTING PRESIDENT pro tempore. The Senator from Connecticut.
  Mr. DODD. Madam President, my friend and colleague from Texas serves 
on the Banking Committee. I thank her and Senator Klobuchar. There was 
a series of amendments in which Senator Hutchison was involved. They 
added value to this bill, and I thank her for it.
  I mentioned yesterday, as a relatively junior member of the Banking 
Committee, there was no Member of this Chamber who added as much to the 
bill as the Senator from Virginia. There are not words nor time for me 
to adequately express my gratitude for his involvement. Literally 
almost on an hourly basis, he was involved, along with Senator Corker 
of Tennessee. They spent hours on their own talking with other people 
about how to fashion two of the most critical titles of this bill. Let 
me express my gratitude once again to Senator Mark Warner of Virginia 
and thank him immensely for his contribution. He did a great job.
  The ACTING PRESIDENT pro tempore. The Senator from Virginia.
  Mr. WARNER. Madam President, I thank the chairman for those kind 
remarks. It is a good feeling for all of us who have labored on this 
legislation--Members and staff--that we are finally coming to a 
successful conclusion on the Dodd-Frank Wall Street Reform and Consumer 
Protection Act and it is going to be enacted into law.
  As those equally controversial pieces of legislation in the 1930s 
stood the test of time for decades, I think this bill will stand the 
test of time for decades as well in terms of creating a new set of 
rules of the road for not just America's financial sector but, in a 
sense, the world's financial sector for decades to come.
  While not perfect--no piece of legislation is--one of the things that 
gives me some confidence that the right balance has been struck is that 
this bill has been criticized by both the left and the right. Some on 
the left, some on the Democratic side, have said the bill has not gone 
far enough in putting more requirements and restrictions on our 
financial institutions. Some of my colleagues on the Republican side, 
on the right, have said this bill goes too far.
  The fact that it is getting perhaps that left-and-right criticism 
puts us maybe in that right-in-the-middle section, which is the 
appropriate balance we tried to strike since the chairman started this 
effort well over 2 years ago.
  I think it is important at times we remember why we are here. Two 
years ago, the markets were in chaos. President Bush and Secretary 
Paulson had created TARP with a $700 billion unprecedented bailout to 
shore up our financial system. President Obama was in crisis mode with 
our economy still in free-fall from day one. The Dow was at 6,500, and 
there was a lot of talk of nationalizing banks.
  Well, close to a year and a half to 2 years later, we have seen 
stimuluses and stress tests. We have seen a DOW that now has touched 
11,000. While the economy is not creating jobs at the rate any of us 
would like to see, the talk of financial Armageddon or complete 
collapse has disappeared.
  I think we went into this process with three goals: First, the 
taxpayers must never again hear that a company is too big to fail. 
Second, we had to fix our regulatory system to make sure the huge gaps 
that existed that allowed systemic regulatory arbitrage could no longer 
take place. And, finally, consumers and investors had to have 
confidence that our markets were fair, transparent, and that there 
would be an officer on the beat to make sure some of the excesses that 
took place in 2005, 2006, and 2007--where folks were being put into 
homes they could never afford to pay for or having financial 
instruments that were being created under the guise of lowering the 
cost of risk that were more about simply creating fee income--would 
never again prey on unweary investors or on homeowners who got 
themselves into trouble.
  I think one of the most interesting critiques that some still make of 
the bill is that we have not addressed too big to fail. Well, candidly, 
with the United States moving first on this legislation, and the rest 
of the world waiting for the United States to move, we hear from our 
European colleagues that the framework we have set up, actually, they 
hope to emulate. We have created a new regulatory structure so the 
regulators can get out of their silos--depository institutions on one 
side, security institutions on another, derivatives trading on a 
third--and make sure we have a full systemic risk council so we can 
measure risk wherever it exists, regardless of the charter of the 
organization.
  While some said we ought to go ahead and limit the asset size of some 
of our institutions, just on size alone, I think the chairman wisely 
decided as we went through a year and a half of hearings, what often 
precipitated the greatest risks to our system was not

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size alone--America has only 4 of the 50 largest banks in the world--
but it was the interconnectedness, their leverage, their failure to 
have appropriate risk management plans in place.
  This new systemic risk council is specifically charged with making 
sure our large, more complex institutions have more stringent capital 
requirements, leverage ratios, liquidity requirements, and risk 
management tools. We even created two whole new categories, that while 
not fully tested--both of these categories actually came from 
colleagues on the other side of the aisle--they could be important new 
steps to prevent these large institutions from failing.
  One is contingent debt that large institutions would have to have 
that if they get themselves even close to trouble, that debt would 
convert into equity, consequently diluting existing shareholders and 
management and keeping pressure on the board to make sure management 
would not take that risk.
  Finally, a tool that, again, if implemented correctly, will be 
tremendously powerful; that is, to ensure that all these large, complex 
institutions provide a plan about how they will be able to unwind in an 
orderly fashion through traditional bankruptcy provisions. Our goal is 
to always have bankruptcy be the appropriate response. If that 
liquidation plan or if that debt plan is not blessed by the council of 
regulators, the council of regulators can dismember, break up, or put 
other restrictions on these large institutions.
  I think Senator Dodd made the decision to task my good friend, 
Senator Corker of Tennessee, and I with this issue: If those processes 
still do not work, how do we make sure we have an orderly liquidation 
process? Our goal was twofold: One, taxpayers should never have to bear 
the risk; and, two, if an entity goes into liquidation, it will not 
come out. Liquidation or resolution is not an attempt to stand up an 
institution. But we wanted to make clear to shareholders, to 
management, if you go into resolution, you are toast, as my colleague, 
Senator Corker, often said.
  We think we have reached that goal, and I am particularly proud of 
titles I and II of this bill. Actually, when Chairman Dodd and Senator 
Shelby put some amendments to it, it was endorsed by 95 of our 
colleagues. It is the broadest bipartisan section of this legislation. 
This bill addresses a number of other vital areas as well. It allows a 
single depository place to get the appropriate day-to-day information 
on our financial institutions--that still did not exist until we 
created the Financial Services Oversight Council--and having the 
ability to get on a daily basis the level of interconnectiveness of a 
future AIG.
  It puts in place a consumer protection bureau to make sure, for 
example, mortgages are regulated in a way that consumers can 
understand, regardless of the charter of the organization. We often 
found banks had a fairly good ability to regulate some of their 
mortgages; whereas, mortgage lenders and others, who were unregulated, 
had no such restrictions. Now we have an even playing field.
  It finally puts in place--there is some debate on this issue--an 
appropriate process to regulate derivatives and to bring these critical 
but potentially dangerous instruments out of the shadows, and the vast 
majority of these instruments will now be traded in a more transparent 
way on exchanges.
  There is more to be done. Domestic and international implementation 
is vitally important. As I mentioned at the outset, the United States--
and this is one of the things that is kind of remarkable, when I hear 
from some of my colleagues we have moved too quickly or this bill does 
too much--candidly, the whole rest of the world has been waiting on 
America to act to set the template for broad-based financial reform. 
Now that we have acted, I think particularly Europe and Asia will 
follow our stead. But making sure we do this with appropriate 
international implementation is terribly important--the Basel 
circumstances--but also making sure we have the regulatory approach 
across the world correct so there is not an international ability to 
arbitrage with these large financial institutions.
  I know some of my colleagues on the other side of the aisle have also 
raised the question that this bill does not fully address the GSEs. 
They are right. But I think it was the right and conscious decision of 
the chairman and others that to disrupt an already still fragile 
housing market at this moment in time in a piece of legislation that 
has already been accused by some as being too broad and covering too 
many items was not the appropriate choice.
  We will have to come back and deal with GSEs. We have to make sure, 
as we deal with GSEs, international implementation, we stay vigilant. 
We have given the regulators the tools. How they use these tools will 
be up to us in Congress to make sure they are implemented correctly 
with appropriate oversight.
  I am, in certain ways, disappointed this bill is not being passed 
with broader bipartisan legislation. But we have only gotten here 
because there is bipartisan support.
  I want to close acknowledging again--the chairman was very kind in 
his remarks--I cannot think, in my short tenure in the Senate, of any 
other Senator who has worked harder on a piece of legislation, who has 
been more relentless, who has had more twists and turns, who has had 
more ``we are there; but, oh, my gosh, we may not be there,'' who has 
had probably more 10 o'clock, 2 o'clock in the morning, 4 o'clock in 
the morning, I believe at one point, telephone calls and meetings with 
other Members.
  As the Senator from Texas mentioned earlier, even though the Senator 
from Texas could not support the overall bill, our chairman has worked 
with all Members regardless of party to try to accommodate their 
interests. I commend the Senator from Texas for pointing out, for 
example, the community-based and independent banks come out of this 
legislation as one of the real winners in terms of their ability to 
have more fair competition with the larger institutions.
  So I commend the chairman, and I commend all of my colleagues on both 
sides of the aisle, even those who perhaps will not vote for the final 
product but were a part of building the product, where their ideas were 
implemented.
  When we think about the Glass-Steagalls, and when we think about the 
bills that created the SEC, when we think about the legislation in the 
1930s, in the moment of crisis, that created the financial framework 
for 20th-century American capitalism, what this bill has done--there 
will be work done to improve and fully implement it, but what this bill 
has done has set a framework for 21st-century American capitalism and, 
in a certain way, a framework for 21st-century capitalism across the 
world in a way that America can remain the center for financial markets 
but at the same time making sure both consumers and the investing 
public are protected in this new and very challenging world.
  With that, I yield the floor. I again extend my compliments to the 
chairman and all who have been involved in this legislation.
  The ACTING PRESIDENT pro tempore. The Senator from Arizona.
  Mr. KYL. Madam President, I, too, would like to speak to the 
conference report on financial regulatory reform, which we will 
presumably vote on in a couple of hours. I think we all agree that the 
purpose of financial regulatory reform should have been to tackle the 
problems that led to the financial crisis in the first place. That 
means serious reform must, at the very least, end too-big-to-fail 
financial institutions and rein in two government-sponsored 
enterprises, the GSEs, Fannie Mae and Freddie Mac.
  But despite its size and the hype behind it, the bill before us fails 
in those two key respects. Moreover, even though Main Street did not 
cause the problem, the bill is so pervasive in its regulatory reach 
that it creates new burdens for Main Street businesses. I am not sure 
that is what the bill's supporters want or its authors intend, but that 
will be the result.
  For example, a July 4 Wall Street Journal news article entitled 
``Finance Overall Casts Long Shadow on the

[[Page 13148]]

Plains'' explains how new derivatives rules will harm America's 
livestock farmers.
  There are other problems with the bill. The biggest new problem it 
causes is the harm to the availability of credit, something our 
colleague, Senator Gregg from New Hampshire, has talked a lot about. It 
implements one-size-fits-all capital standards and uses flawed funding 
mechanisms. It also perpetuates bailouts, and burdens small businesses 
with new regulations, which I will speak about in a moment.
  Let me address a few of these problems in more detail: First, the 
cost and offsets of the bill; second, the failure to address the GSEs, 
Fannie Mae and Freddie Mac; and, third, the job-killing Consumer 
Financial Protection Bureau that will reduce available credit for 
American businesses and thus reduce job creation.
  First, the cost and offsets. The Congressional Budget Office has put 
the 10-year cost of the conference report bill at approximately $19 
billion. That is the cost of this alleged new reform. Democrats 
initially tried to fund this obligation with a new tax imposed on large 
financial institutions. When that could not be sustained, they decided 
on a new funding mechanism that, as National Review recently 
editorialized, ``were a corporation to try it, would get its 
accountants sent to prison for fraud.''
  Here is how it works. The bill would now ``cancel'' the Troubled 
Asset Relief Program, or TARP, a few months early, thus ``saving,'' 
theoretically, the government around $11 billion, even though it is 
highly unlikely that money would ever have been used to make additional 
TARP loans. That $11 billion would then be used to partially offset the 
cost of the bill.
  Remember, that is money that has to be borrowed. So instead of simply 
borrowing 11 billion fewer dollars, we are going to pretend as though 
we already have that money and that we can save it by not spending it 
on TARP, so we will spend it on this legislation. It is a double 
counting that National Review is right about: It would have put a 
private business CEO or CFO in jail if he had tried to do an accounting 
trick such as that.
  The TARP law moreover states that any money rescinded from TARP shall 
not be counted for the purpose of budget enforcement. But to avoid 
violating the so-called pay-go rule in the House, the conference report 
nevertheless uses this alleged savings to pay for the financial reform 
provisions, thereby violating both the letter and the spirit of the 
TARP law. And, as I said, taking these funds to pay for something else 
rather than rescinding them simply pushes our Nation deeper into debt.
  So with regard to the cost of the bill--$19 billion--and the offset, 
much of which is not a true offset but simple double accounting with 
money we don't own or have anyway, but have to borrow, is a bad way to 
do business, to say the least, especially on something that is called a 
financial reform bill.
  Now, I guess, fortunately, we have changed the name to reflect the 
authors of the bill. It is no longer the financial reform bill; it is 
now the Dodd- Frank bill. I appreciate the naming of the bill for my 
good friend, the Senator from Connecticut, but it is supposed to be 
about financial reform, and it isn't financial reform when you take 
money you don't have, spend it for something you are not legally able 
to spend it for, and call that an offset for the cost of the bill.
  Nevertheless, problem No. 2: Fannie and Freddie. It is just 
unconscionable that this bill doesn't attempt to reform in any way the 
two biggest causes of the problem: Fannie Mae and Freddie Mac. It was 
their reckless behavior that was a major cause of the financial crisis. 
It is not for lack of trying on Republicans' part. Our Democratic 
friends say: Well, we will do that later, maybe next year. I suggest 
doing that is highly improbable. The way things work around here is, 
when you do a comprehensive bill such as this, there are a lot of 
tradeoffs, a lot of different interests involved. If you can't include 
all of the elements in one bill, it is very difficult to find the 
political will to tackle the biggest problem of all--Fannie and 
Freddie--next year without the leverage of the other provisions of the 
bill to deal with.
  The behavior of these two institutions--these GSEs that have come to 
epitomize too big to fail--has surged through the entire commercial 
banking sector and our economy as a whole and has turned out to be one 
of the most expensive aftereffects of the financial crisis. For years, 
Fannie and Freddie made mortgages available to too many people who 
could not afford them. Smaller companies were crushed while the two 
GSEs and their shareholders reaped enormous profits, recklessly taking 
advantage of the government's implicit guarantee to purchase trillions 
of dollars worth of bad mortgages, including those made to risky, so-
called subprime borrowers. It was a textbook example of moral hazard on 
a massive scale.
  I was reminded of what I am speaking of this morning driving in and 
hearing an ad on the radio which said that through Fannie Mae, you 
could get a mortgage for 105 percent of the value of your home. Now 
that means that immediately you are so-called underwater; that is to 
say, you owe more than your home is worth.
  Why are we immediately making the same mistake with Fannie Mae that 
got us into the problem in the first place, where the mortgages 
exceeded the value of the homes? I don't understand it.
  The easy credit that was provided before is what helped to fuel the 
rising home prices that created the inflated housing bubble, especially 
in the subprime mortgage market. As prices rose, so too did the demand 
for even larger mortgages, so Fannie and Freddie looked for ways to 
make even more credit available to borrowers. But, of course, when the 
market collapsed, the two GSEs were left with billions of dollars of 
bad debt.
  By 2008 they held nearly $5 trillion in mortgages and mortgage-backed 
securities. They were overleveraged but, unfortunately, deemed too big 
to fail.
  So what do we have today? Fannie and Freddie hold a combined $8.1 
trillion of outstanding debt. Think of that: $8.1 trillion. In total, 
taxpayers have lost already $145 billion bailing them out. When 
Secretary of the Treasury Geithner lifted the bailout cap last 
December, it put the taxpayers on the hook for the remainder of these 
losses, for unlimited losses at these two institutions.
  So let's be clear. Every day that Fannie and Freddie remain in their 
current form is a day that U.S. taxpayers are subsidizing the failed 
policies of the past. I think it is very doubtful we are going to get 
meaningful reform of Fannie and Freddie when it couldn't be done in the 
bill that is supposed to deal with all of the underlying problems that 
created the recession we are in now.
  The third problem: Harming small business through ``consumer 
protection.'' It harms far more than small business; it harms everyone 
who is attempting to get credit. As our friend and colleague, Senator 
Gregg, has said many times on this floor, perhaps the biggest problem 
with this legislation is the fact that it is going to make credit much 
more expensive for everyone. But let's start with small businesses.
  In my home State of Arizona and across the country, these are the 
entities that hire. They are supposed to be the first ones that hire 
coming out of a recession. The way they do that is to have access to 
credit. Well, they are obviously very wary of the intrusive new 
bureaucracy that masquerades as consumer protection in this bill, but 
which would compound the problem of credit availability.
  All of us here support the concept of consumer protection, so let's 
don't get off on a tangent of being for or against consumer protection. 
We all support that. The question is, How do you do it? Safeguards can 
be strengthened without creating a new regulatory bureaucracy with the 
powers that exist in this bill and all of the untoward ramifications 
that result. Unfortunately, the conference report maintains, with very 
little change, the flawed Consumer Financial Protection Bureau from the 
bill that was passed in the Senate, the so-called CFPB. It is

[[Page 13149]]

housed in and funded by the Federal Reserve but theoretically would 
operate as an independent agency with an enormous budget and with rule-
writing ability and enforcement authority that I think will, in fact, 
create independence from the Fed.
  The CFPB could significantly reduce credit access for small 
businesses and thereby jeopardize America's economic recovery. Without 
available credit, companies cannot grow and consequently will not hire 
additional American workers. Obviously, that is not what the bill's 
authors intended, but it is the inevitable result.
  The new bureau will have a say in almost every aspect of American 
business. In an attempt to ensure--and I am quoting now--``ensure the 
fair, equitable and nondiscriminatory access to credit for individuals 
and communities''--the wording in the law--the new bureau will have 
latitude to impose its will, with few checks and balances, on American 
credit providers, all of which will result in more expense, more 
regulation, higher costs for consumers, and less availability of 
credit.
  The CFPB also exposes companies to very costly compliance and 
extensive enforcement proceedings, including potentially frivolous 
lawsuits, by eliminating national preemption and other means.
  In my view, the potentially serious costs of this bureau do not 
justify its purported benefits. Consumer protection could have been 
accomplished in much less intrusive and fairer ways. We all want to 
shield consumers from abuses and exploitation, but this is obviously 
not the right way to do it.
  So we should ask ourselves one question: Why is it that the CEOs of 
some of the largest companies on Wall Street, some of the largest 
financial institutions, actually favor this bill? Well, it is no skin 
off their backs. They have the money, and they have the resources and 
the personnel to deal with its complexity and to put the money up front 
and then charge the consumers on down the line. It would entrench their 
privileged status, as they have the resources to maneuver around its 
provisions, as I said, and would certainly institutionalize the idea 
that certain big financial firms deserve preferential treatment by 
Federal regulators.
  So for all of the reasons I have discussed, as well as others, and 
despite my strong desire to enact prudent financial reforms, I think 
this legislation is misguided. I can't support it, and I urge my 
colleagues to vote against it.
  The PRESIDING OFFICER (Mrs. Hagan). The Senator from Connecticut.
  Mr. DODD. Madam President, I recognize my friend and colleague from 
Delaware.
  The PRESIDING OFFICER. The Senator from Delaware.
  Mr. KAUFMAN. Madam President, I rise today to speak on the Dodd-Frank 
bill. I must start by expressing my awe--that old expression from Iraq, 
``shock and awe''--at what Chairman Dodd has been able to do during 
this session of the Congress. I have been around this place since 1973, 
and I genuinely cannot think of an example where an individual Senator 
ever participated in passing three bills in one Congress of the 
magnitude of the health care bill, the credit card reform bill, and now 
the Dodd-Frank bill. If there is a legislative hall of fame, there is a 
spot for Chris Dodd in that hall of fame.
  I am going to speak today about areas where I don't agree with this 
bill. Anyone who has followed my speeches on the floor would recognize 
that I have a difference of opinion on a number of issues. However, I 
wish to make it clear from the beginning--and I will raise it again in 
my speech--to the extent this bill doesn't reach where I want it to 
reach, the responsibility lies on my friends--and I truly mean my 
friends--and colleagues on the other side of the aisle.
  Time and again, vote after vote, they voted as a block to block 
meaningful reform on many issues. We can talk about the Brown-Kaufman 
amendment to break up the banks or we can talk about the maneuvers that 
were done on the Brownback bill so we never got a vote, and on Levin-
Merkley. So as I give this speech today, the reason we didn't get the 
things I wanted in this bill is because 41 Republicans, time and time 
and time again--when there was a vote up they could have changed the 
way we do things; they could have instituted the kinds of reforms I 
wanted in this bill--voted against it.
  So Chairman Dodd was left with the problem of, How do we get the 
votes together to pass the bill? It is essential that we pass a bill, 
and a good bill, and we did, and I am voting for it. But it could have 
been, in my opinion, a better bill if several votes had gone the other 
way.
  After months of careful consideration, landmark financial reform 
legislation moves toward final passage. While this bill is a vast 
improvement over the existing regulatory structure, I believe it should 
go further with respect to erecting statutory rules that address the 
fundamental problem of too big to fail.
  Anyone who has heard my speeches on the Senate floor starting 4 or 5 
months ago will understand my position on that. I made it abundantly 
clear. I will support the conference report, but I do so with 
reservations about a missed opportunity to enact meaningful reforms 
that would prevent another financial crisis. But as I said before, 
ultimately, given the makeup of the Senate and the requirement for 60 
votes and the intransigence on the other side of the aisle, this was 
the best bill that could pass.
  For those who wish the bill were stronger, let there be no confusion 
about where the blame lies. It is because almost every Senator on the 
other side of the aisle did everything they could to stall, delay, and 
oppose Wall Street reform.
  To be sure, the bill that has come out of conference includes some 
extremely important reforms. It establishes an independent Consumer 
Financial Protection Bureau with strong and autonomous rulemaking 
authority and the ability to enforce those rules for large banks and 
nonbank entities such as payday lenders and mortgage finance companies. 
In addition, it requires electronic trading and centralized clearing of 
standardized over-the-counter derivatives contracts, as well as more 
robust collateral margin requirements. The bill's inclusion of the 
Kanjorski provision will give regulators the explicit authority to 
break up megabanks that pose a ``grave threat'' to financial stability.
  I was pleased that the bill includes a provision I helped develop to 
give regulators enhanced tools and powers to pursue financial fraud. 
Through the Collins provision, the bill also establishes minimum 
leverage and risk-based capital requirements for bank holding companies 
and systemically risky nonbank institutions that are at least as 
stringent as those that apply to insured depository institutions, an 
important reform in this bill.
  In light of the failures of past international capital accords, this 
requirement will set a much-needed floor on how low capital can drop in 
the upcoming Basel III negotiations on capital requirements. It will 
also ensure that the capital base of megabanks is not adulterated with 
debt that masquerades as equity capital.
  That being said, unfortunately, I believe the bill suffers from two 
major problems. First, the bill delegates too much authority to the 
regulators. I have been around the Senate for 37 years. As I said on 
the Senate floor on February 4 of this year and in several speeches 
since then, I know that many times laws are not written with hard and 
clear lines. Laws are a product of legislative compromise, which often 
means they are vague and ambiguous. We often justify our vagueness by 
saying the regulators to whom we grant statutory authority are in a 
better position than we are to write the rules--and then to apply those 
regulatory rules on a case-by-case basis. But, as I have said, this was 
not one of those times. This was a time for Congress to draw hard lines 
that get directly at the structural problems that afflict Wall Street 
and our largest banks.
  Despite repeated urging from me and others to pass laws that would 
help

[[Page 13150]]

regulators to succeed, Congress largely has decided instead to punt 
decisions to the regulators, saddling them with a mountain of 
rulemakings and studies. The law firm Davis Polk has estimated that the 
SEC alone must undertake close to 100 rulemakings and more than a dozen 
studies. Indeed, Congress has so choked the agencies with rulemakings 
and studies, the totality of the burden threatens to undermine the very 
ability of the agencies to accomplish their ongoing everyday mission. I 
for one urge the agencies carefully to triage these required 
rulemakings and studies, establish a hierarchy of priorities, and 
ensure that the agencies do not shift all resources to new rules meant 
to address old problems to such a degree that they fail to stay on top 
of current and growing problems. I will have more to say on this 
subject in a future speech.
  Second, the legislation does not go far enough in addressing the 
fundamental problem of ``too big to fail.'' Instead of erecting 
enduring statutory walls as we did in the 1930s, the bill invests the 
same regulators who failed to prevent the financial crisis with 
additional discretion and relies upon a resolution regime to 
successfully unwind complex and interconnected mega-banks engaged 
across the globe. I am also disappointed that key reform provisions 
like the Volcker Rule and the Lincoln swaps dealers spin-off provision 
were scaled back in conference.
  The bill mainly places its faith and trust in regulatory discretion 
and on international agreements on bank capital requirements and 
supervision. After decades of deregulation and industry self-
regulation, it is incumbent upon the regulators now to reassert 
themselves and establish rulemaking and supervisory frameworks that not 
only correct their glaring mistakes of the past, but also anticipate 
future problems, particularly risks to financial stability. 
Unfortunately, the early indications we are seeing out of the G-20 and 
so-called Basel III discussions are not encouraging, as critical 
reforms are already being watered down and pushed back in part because 
some foreign regulators carelessly refuse to heed the risks posed by 
their megabanks.
  The legislation also puts in place a resolution authority to deal 
with these institutions when they inevitably get into trouble. While 
such authority is absolutely necessary, it is not sufficient. That is 
because no matter how well Congress crafts a resolution mechanism, 
there can never be an orderly wind-down of a $2-trillion financial 
institution that has hundreds of billions of dollars of off-balance-
sheet assets, relies heavily on wholesale funding, and has more than a 
toehold in over 100 countries. Of course, since financial crises are 
macro events that will undoubtedly affect multiple megabanks 
simultaneously, resolution of these institutions will be enormously 
expensive. And until there is international agreement on resolution 
authority, it is probably unworkable.
  Given the history of financial regulatory failures and the enormous 
burden of rulemakings and studies with which the regulators are being 
tasked, Congress has a critical oversight responsibility. Congress 
first must ensure that the regulators have enough staff and resources 
at their disposal to follow through on their serious obligations. Just 
as important, Congress must monitor the regulatory phase of this bill's 
implementation closely to ensure that the regulators don't return to 
``business as usual'' when the experience of the most recent financial 
crisis fades into memory.
  How quickly we forget. Time and again, I have heard people speak as 
if there was no big financial crisis, saying: I have a bank in my 
hometown that is going to have a problem with this legislation. So we 
should let all the banks be free to do whatever they want to do. We had 
a crisis here that practically destroyed the country, the world, and 
these people are bringing up anecdotal evidence to give these banks 
more responsibility and not go after the root cause.
  For example, in addition to granting great discretion to regulators 
on how they interpret the ban on proprietary trading at banks, the 
scaled-back Volcker Rule contains a large loophole that allows 
megabanks to continue to own, control and manage hedge funds and 
private equity funds under certain conditions. Most notably, it 
includes a de minimis exception that permits banks to invest up to 
three percent of Tier 1 capital in hedge funds and private equity funds 
so long as their investments don't constitute more than three percent 
ownership in the individual funds.
  The impact of a supposedly small three percent de minimis exception 
for investments in hedge funds and private equity firms has the 
potential to be massive. For example, a $2 trillion bank that has $100 
billion in Tier 1 capital would be able to invest $3 billion into hedge 
funds. Since that $3 billion could only constitute three percent 
ownership, it would need to be invested alongside at least $97 billion 
of funds from outside investors. The bank would therefore be able to 
manage $100 billion in hedge fund assets, a massive amount equal to the 
current size of the largest hedge funds in the world combined. What's 
more, that $100 billion in assets can be leveraged several times over 
through the use of borrowed funds and derivatives into overall 
exposures that could exceed a trillion dollars. And given the ambiguity 
of the legislative language, unless clarified by a rulemaking, some 
commentators have indicated that megabanks could potentially provide 
prime brokerage loans to hedge funds they partially own and run.
  Fortunately, the final bill does place costs on banks' de minimis 
investments in hedge funds and private equity funds. Specifically, the 
legislation requires a 100 percent capital charge on these proprietary 
investments, making them expensive for banks to hold. While this may be 
a helpful deterrent, I am concerned that it will not be enough of one, 
particularly when considering how lucrative and risky an activity it is 
for banks to run hedge funds and private equity funds.
  The overarching problem is that banks will continue to be able to 
offer and run--never mind, partially own--risky investment funds. Even 
though the scaled-back Volcker Rule includes a ``no bailout'' 
provision, I have concerns about the credibility of that edict. Under 
any circumstance, the failure of a massive hedge fund run by a megabank 
would pose serious reputational and financial risks to that 
institution.
  Just look at what happened when the structured investment vehicles, 
or SIVs, of Citigroup and other megabanks began to falter. Because of 
the reputational consequences of liquidating these funds and allowing 
them to default on their funding obligations, they were bailed out by 
the megabanks that spawned them even though the SIVs themselves were 
generally separate, off-balance-sheet entities with no official backing 
from the banks.
  Finally, the strength of the core part of the Volcker Rule--the ban 
on proprietary trading--will depend greatly on the interpretation of 
the regulators. They will ultimately be the arbiter of whether broad 
statutory exceptions for ``market making'' or ``risk-mitigating 
hedging'' or ``purchases'' or ``sales'' of securities on ``behalf of 
customers'' are allowed to swallow the putative prohibition. I 
therefore urge the regulators to construe narrowly those activities 
that constitute exceptions to proprietary trading to ensure that the 
Volcker Rule has some teeth in it.
  Senator Lincoln's original swap dealer spin-off provision would have 
prohibited banks with swap dealers from receiving emergency assistance 
from the Federal Reserve or FDIC. By essentially forcing megabanks to 
spin off their swap dealers into an affiliate or separate company, this 
section would have helped restore the wall between the government-
guaranteed part of the financial system and those financial entities 
that remain free to take on greater risk. It would also have forced 
derivatives dealers to be adequately capitalized.
  While the final bill includes the Lincoln provision, it limits its 
application to derivatives that reference assets that are permissible 
for banks to hold and invest in under the National Bank

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Act. Since that exception covers interest rates, foreign exchange and 
other swaps, it ultimately exempts close to 90 percent of the over-the-
counter derivatives market. Regulators must therefore reduce 
counterparty exposures by requiring the vast majority of derivatives 
contracts to be cleared and calibrate carefully the amount of capital 
that bank derivatives dealers must maintain. Only then can we be sure 
we never again face a meltdown caused by excessively leveraged 
derivatives exposure that no regulator helps to keep in check.
  The financial reform bill places enormous responsibilities and 
discretion into the hands of the regulators. Its ultimate success or 
failure will depend on the actions and follow-through of these 
regulators for many years to come.
  One of my main concerns is, if we elected another President who 
believed we should not have regulators and regulation, they would again 
have the ability to do what they did to cause a meltdown.
  It is estimated that various Federal agencies will be charged with 
writing over 200 rulemakings and dozens of studies. Many of the same 
regulators who failed in the run-up to the last crisis will once again 
be given the solemn task of safeguarding our financial stability. Like 
many others, I am concerned whether they have the capacity and 
wherewithal to succeed in this endeavor.
  I repeat again, Congress has an important role to play in overseeing 
the enormous regulatory process that will ensue following the bill's 
enactment. The American people, for that matter, must stay focused on 
these issues, if just to help ensure that Congress indeed will fulfill 
its oversight duty and its duty to intervene if the regulators fail. 
Likewise, although I will be leaving the Senate in November, I will be 
watching closely to see how the regulators follow through on the 
enormous responsibilities they are being handed.
  Let us not forget why reform is so necessary and important. After 
years of Wall Street malfeasance and the systematic dismantling of our 
regulatory structure, our financial system went into cardiac arrest and 
our economy nearly fell into the abyss. Wall Street, which had grown 
out of control on leverage and financial gimmickry, blew up. More than 
8 million jobs were wiped out; millions more have lost their homes. We 
spent trillions of dollars in monetary easing and emergency measures to 
avert the wholesale failure of many of our megabanks. Not surprisingly, 
we continue to feel the aftershocks of the worst financial crisis since 
the Great Depression.
  Every single thing you look at, almost without exception, when you 
read our newspapers, is related to our present economic situation, 
which was caused by lack of regulatory action on Wall Street.
  The banks are not lending. Fed Chairman Bernanke just days ago urged 
them to do more for small businesses. Companies and consumers alike 
remain shaken in their confidence. And despite dramatic stimulus 
measures, the economic recovery has been slow and tentative. Many of 
the opponents of Wall Street reform would like to make the dubious 
claim that the recovery is being held back by uncertainty about future 
regulations and taxes. Can you believe that? In reality, it is being 
held back by the financial shock and the fact that we are still in a 
period of financial instability and undergoing an excruciating process 
of deleveraging. Even now it is unclear whether a European banking 
crisis based on their holdings of sovereign debt will continue to 
impede that recovery.
  It is also being caused by the fact that Americans are losing faith 
in the credibility of our markets. Who wouldn't, after what has 
happened?
  I think it has been an important factor in our present hiccup--
hopefully, it was a hiccup and not a double dip.
  It is, therefore, imperative that we build a financial system on a 
firmer foundation. The American economy cannot succeed--cannot 
succeed--unless we restore and maintain financial stability--not only 
restore and maintain financial stability but maintain the credibility 
of our financial system. We simply cannot afford another financial 
crisis or continued financial instability if the American economy is to 
succeed in the coming decades. Getting financial regulation right and 
maintaining it for years to come should be one of this Nation's highest 
priorities because the price of failure is far too high.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Connecticut.
  Mr. DODD. Madam President, I thank my colleague from Delaware. He 
highlighted the difficulty in passing legislation. There are those who 
think it goes too far and those who think it does not go far enough. We 
do not write a bill on our own. There are 100 of us in this Chamber and 
435 in the other. There are stakeholders, the administration--all sorts 
of people we deal with on these matters. What we try to do is fashion 
the best proposal we can that moves us forward and addresses the 
underlying causes, as we tried to with this bill.
  I appreciate the Senator's points that were raised during the debate 
and discussion. We tried to accommodate them where we could in 
fashioning legislation. It is always a difficult process. You do not 
get to write your own bill. You can write your own bill and introduce 
it, but ultimately, for it to become law requires cooperation. We had 
that cooperation. I appreciate his involvement very much.
  The PRESIDING OFFICER. The Senator from Delaware.
  Mr. KAUFMAN. Madam President, I just laid it out. I taught a course 
on Congress in law school for 20 years. I say this in all sincerity: 
Houdini could not have gotten through this process. Really and truly, 
when one looks at it, Houdini could not have gotten through this 
process with a bill.
  I try very hard to be bipartisan in everything I do, and I try to 
speak well of my colleagues because I really do like every one of my 
colleagues on the other side. That is not hyperbole. But when we start 
out with 41 Senators bound and determined to slow down, delay, stop, 
and block, it makes the job the Senator from Connecticut has done even 
more incredible. And then we have to get 60 votes on anything of 
substance. Then we have to go over to the House side. And God bless our 
friends on the House side. When I talk with them, they just look over 
here and cannot believe we ever get anything done.
  Getting this bill done, getting it through the Senate, dealing with 
all the stakeholders, dealing with the administration, dealing with the 
folks on the House side, and, with all due respect, doing it three 
times in one Congress, is definitely a Hall of Fame performance.
  I thank the Senator again.
  Mr. DODD. Madam President, my colleague talked about 41. There are a 
number of Republicans who played a very critical and supportive role on 
this bill. I do not want the record to persist in suggesting that was 
not the case. Even people on the other side who ended up not voting for 
the bill--at least have not so far--added substantially to the value of 
this bill. In some cases, they might not want to acknowledge that, but 
they did.
  In the case of our two colleagues from Maine and our colleague from 
Massachusetts, they have taken an awful lot of abuse in the last number 
of weeks because they worked with us on the bill and made significant 
contributions. While they do not agree with every dotted ``i'' and 
crossed ``t,'' as I do not with this bill, they decided our country 
would be better off with the passage of this legislation than not.
  I do not want the record to be uncorrected when it comes to the 
number of people, including those three in particular, who will, I 
presume, continue to take some abuse from others because they did not 
toe the party line, nor have they on repeated occasions. They have 
acted as U.S. Senators, which is our first responsibility. I know what 
that feels like. I have been there on numerous occasions in my 30 
years. Several times, I was the only Democrat to vote with Republicans 
on substantive matters. It is a lonely moment. I can tell my colleague 
what

[[Page 13152]]

happens. It is painful, and you get those long looks from your 
colleagues. It is uncomfortable, to put it mildly. I will also tell my 
colleague that some of the proudest moments a colleague will have when 
they serve here is when they make those decisions and do so for the 
right reasons.
  While I am deeply grateful to my Democratic colleagues, many of whom 
had concerns about the bill, as my friend from Delaware did, and have 
been supportive all the way through, I guess there is a bit of the 
prodigal son--prodigal daughter in the case of our colleagues from 
Maine and prodigal son in the case of our colleague from 
Massachusetts--when they decided to stand up and help us get a bill 
done despite the criticism they have received. Everyone who has been 
supportive and helpful deserves credit, but I think those who were 
willing to take an awful lot of abuse in the process of doing so 
deserve commendation.
  I did not want to let that number stand--41--because it implies 
somehow there were people on the other side who were not helpful, and 
they were, including people who did not vote for the bill who were 
helpful as well.
  Mr. KAUFMAN. Madam President, I totally agree with the Senator. It is 
oversimple. I know the Senator from Connecticut received a lot of 
support from the Republican side. I know how difficult it is to be the 
person standing in your caucus when everyone in your caucus wants to 
vote another way. I appreciate that.
  What is amazing to me is what passed was what the three of them would 
sign on to or others would sign on to. The idea that the Senator came 
with a bill--every one of my concerns I raised today, if we had gotten 
some help from the other side might have gone another way. But they 
were not going to go another way with the group we had.
  I could not agree with Senator Dodd more. I think it is easy to stand 
up in our caucus and be for this bill. I think what they did was truly 
courageous. But I also think that on every major issue, to have to 
figure out how we get 60 votes is a special, difficult problem. It is 
not like a swan dive. It is not, like they do in the Olympics, a double 
summersault. Putting all those things together is a triple summersault 
in the pike position. That is the point I want to make--the difficulty 
of getting a bill when we need to get 60 votes on every issue and there 
is a constant pressure on the other side for all to vote together one 
way.
  Mr. DODD. Madam President, I see our colleague from New Hampshire is 
here. I will save this for a later debate, but I know there is talk 
about changing the rules of the Senate because of the frustration 
Senators feel. I will make, in my waning hours here, as strong a plea 
as I can to not succumb to the temptation to change the institution 
because of the current frustrations people feel. There is a reason this 
institution exists and has the rules it does. All of us one day are in 
the minority or majority. The fact that some may abuse the rules, as 
has happened here without any question, ought not to be a justification 
for fundamentally changing them. There are ways to deal with the 
problem without losing the essence of the Senate. He is no longer with 
us, but my seatmate, Robert C. Byrd, would speak for hours on end about 
the importance of not letting the vagaries of the moment dictate the 
long-term interests of the institution.
  I will leave that for another day, but I appreciate it.
  My colleague from New Hampshire is here.
  The PRESIDING OFFICER. The Senator from New Hampshire.
  Mrs. SHAHEEN. Madam President, I am pleased to join my colleague from 
Connecticut, Senator Chris Dodd, and be here on the floor this 
afternoon to talk about the financial regulatory reform bill that is 
pending.
  Before I begin my remarks, I wish to recognize Senator Dodd for his 
leadership and hard work in getting this conference report to the floor 
so that we can hopefully adopt it this afternoon. It is important 
because of what has happened in this country and what has happened in 
my State of New Hampshire.
  Over the past 2 years, people in New Hampshire and across the country 
have suffered the consequences of Wall Street's gambles. While we are 
seeing our economy in New Hampshire begin to rebound, which is thanks 
in no small part to the job creation that was spurred by the Recovery 
Act, it is critical that we act to prevent Wall Street's risky, 
reckless behavior from ever again bringing our economy to its knees.
  We need to put in place reforms to stop Wall Street firms from 
growing so big and so interconnected that they can threaten our entire 
economy. We need to protect consumers from abusive practices and 
empower them to make sound financial decisions for their families. We 
need more transparency and regulation in the now shadowy markets where 
Wall Street executives and investment banks have made gambles. In those 
shadowy markets, the Wall Street firms got all the upside and American 
families got all the downside. We need to do everything we can to 
ensure that a financial crisis, such as the one we experienced in late 
2008, never happens again. We need to ensure that taxpayers will not be 
asked to bail out Wall Street. In short, we need to pass the strong 
Wall Street reform bill that is before us today.
  It is also important to note that while this bill requires Wall 
Street banks to be held more accountable, it does not unfairly burden 
community banks. Community banks did not cause the financial crisis, 
and they should not have to pay for Wall Street's reckless behavior. 
That is particularly important to us in New Hampshire, where community 
banks make a huge difference for our cities and towns. That is why I 
joined with Senator Snowe on her amendment to eliminate the 
unnecessary, burdensome requirement that community banks and credit 
unions collect and report on various data about their depositors.
  I also sponsored another bipartisan amendment, one to make large, 
riskier banks pay their fair share of FDIC premiums and lower 
assessments for community banks. Community bank lending is really the 
lifeblood of New Hampshire's economy. Every dollar community banks have 
to pay for Wall Street's mistakes is a dollar that could be going to 
extend credit to small businesses and to home and consumer loans to 
families.
  I also joined Senator Collins on her amendment to require Wall Street 
banks to follow the same capital and risk standards small depository 
banks must follow. This amendment will make the risky banks that led us 
into this financial crisis--banks such as Bear Stearns and Lehman 
Brothers--follow the same standards that already apply to small 
depository banks.
  This bill requires the big Wall Street banks to have adequate capital 
to prevent taxpayers from having to bail them out again.
  I am very pleased that those bipartisan amendments, which have 
strengthened the bill by protecting community banks, have been adopted. 
It speaks to the conversation Senator Dodd was having with Senator 
Kaufman earlier that this is a bill that has gotten broad support in 
this body and a lot of input that has made it better.
  I am glad we have been able to work in this bipartisan manner to 
craft a strong bill that reins in the reckless Wall Street conduct that 
brought us to the edge of financial disaster. It keeps community banks 
strong, and it protects consumers and taxpayers.
  I look forward to voting ``aye'' this afternoon when we get to the 
vote on the conference report.
  The PRESIDING OFFICER. The Senator from Connecticut.
  Mr. DODD. Madam President, briefly, I thank my colleague from New 
Hampshire. I see my other colleague from New Hampshire as well. It is a 
New Hampshire moment. I thank Senator Shaheen and our colleague from 
Maine, Senator Snowe, for working as they did on the community bank 
issues.
  I was pleased, as I noted yesterday, that the Independent Community 
Bankers Association, while not endorsing the entire bill but 
specifically on their issues involving community

[[Page 13153]]

banks expressed strong support for this bill and how much stronger 
these banks are today as a result of our efforts than would be the case 
if we were to defeat the legislation. Their ability to compete with 
these larger banks has been enhanced tremendously by what we have done 
in this bill. If these provisions were not adopted, they would be back 
in a situation where there would be significant disadvantages for them 
under the current law.
  I am very grateful to Senator Shaheen and Senator Snowe and others 
who supported their efforts to strengthen the role of our community 
banks that play such a critical role. As the Senator from New Hampshire 
pointed out, they were never a source of the problems in the 
residential mortgage market at all. That deserves to be repeated over 
and over.
  I thank the Senator for her comments.
  Mr. JOHNSON. Madam President, Congress is now on the brink of passing 
a landmark deal on legislation to reform Wall Street and prevent 
another financial crisis like the one we faced nearly 2 years ago. This 
legislation is an important and long overdue measure that will help to 
safeguard the long-term stability of our economy.
  In the closing months of the Bush administration, our Nation faced an 
economic situation so dire that many feared our financial system was on 
the verge of collapse. Though we were able to avert such a collapse, 
the impact of the crisis spread across America, leaving few untouched.
  Virtually all of us have been impacted by the economic meltdown in 
some way: businesses shed jobs, workers' hours were cut, some folks had 
great difficulty making their mortgage payments when their pay was cut, 
small businesses lost customers and revenue in the downturn. South 
Dakota homeowners, regardless of whether they had a mortgage or owned 
their home outright, saw their equity drop, and most folks with 
investments for retirement or other long-term goals suffered losses 
either through the stock market plunge, bond market turbulence, or 
passbook savings interest rates that hovered near zero percent. Lending 
at our Nation's banks contracted, spending fell, and overall consumer 
confidence plummeted.
  Americans were rightly angry that while they were losing their homes, 
jobs, and long-term savings, they were also expected to foot the bill 
for the irresponsible actions of Wall Street CEOs. Their outrage only 
grew when these same CEOs continued collecting unprecedented bonuses--
presumably for their work in recklessly taking our Nation to the brink 
of collapse. Frankly, I share that anger.
  It is clear that our economy has not yet fully recovered, but in the 
last year and a half, Congress has dedicated itself to turning our 
economy around. We are now on the verge of passing historic legislation 
that creates better accountability and transparency for Wall Street and 
the financial sector.
  As a senior member of the Banking Committee, and a member of the 
conference committee, I have worked hard to identify the causes of the 
crisis and find the right solutions to address these causes. I have 
talked at length with South Dakotans of all backgrounds and political 
stripes to gain their perspective, and there are some things that get 
mentioned time and again: there were many causes for the meltdown, but 
gaps in regulation contributed to the problem; rules that applied to 
some financial companies but not all opened loopholes that bad actors 
could exploit; the lack of a system to monitor risks across the banking 
sector left taxpayers vulnerable; regulators were not very focused on 
looking out for consumers; and large Wall Street firms operated with 
little or no accountability to either their shareholders or their 
customers. In addition, it became clear we needed a system to unwind 
big financial firms like AIG, Lehman Brothers, and Bear Stearns in an 
orderly fashion and without taxpayer bailouts. Doing nothing is not an 
option, and I do not think anyone can say with a straight face that our 
current system of financial regulation works for America.
  While not perfect, the Wall Street reform measure does a great deal 
to address many of these problems. It creates a mechanism to monitor 
systemic risk in the financial sector, as well as regulating risky 
derivatives, credit default swaps and other complicated financial 
products that were not transparent and had previously gone unregulated. 
It affords consumers better rules governing the products they use and 
better information about those products by creating a consumer watchdog 
agency. Importantly, it also creates a way to unwind large financial 
firms without having to bail them out.
  Specifically, I want to mention two provisions. First, I am pleased 
that the conference committee accepted the Carper-Bayh-Warner-Johnson 
amendment, which I strongly supported, regarding the preemption 
standard for State consumer financial laws. This amendment received 
strong bipartisan support on the Senate floor and passed by a vote of 
80 to 18. One change made by the conference committee was to restate 
the preemption standard in a slightly different way, but it is clear 
that this legislation is codifying the preemption standard expressed by 
the U.S. Supreme Court in Barnett Bank of Marion County, N.A. v. 
Nelson, Florida Insurance Commissioner, 517 U.S. 25 (1996) case. This 
will provide certainty to consumers and those that offer consumers 
financial products.
  Also, section 913 of the conference report reflects a compromise 
between the House and Senate provisions on the standard of care for 
brokers, dealers, and investment advisers. It includes the original 
study provisions passed by the Senate, together with additional areas 
of study requested by the House--a total of 13 separate considerations 
and a number of subparts, where we expect the SEC to thoroughly, 
objectively and without bias evaluate legal and regulatory standards, 
gaps, shortcomings and overlaps. We expect the SEC to conduct the study 
without prejudging its findings, conclusions, and recommendations and 
to solicit and consider public comment, as the statute requires. As 
Chairman Frank described the compromise when he presented it to the 
committee, section 913 does not immediately impose any new duties on 
brokers, dealers and investment advisers nor does it mandate any 
particular duty or outcome, but it gives the SEC, subsequent to the 
conclusion of the study, the authority to conduct a rulemaking on the 
standard of care, including the authority to impose a fiduciary duty. I 
think this is a strong compromise between the House and Senate 
positions.
  This bill gives financial institutions, regulators and consumers the 
right tools to make good decisions, and it also provides the right 
tools to prevent another crisis like the one we recently experienced. 
Many of the bill's provisions, including those mentioned previously, 
have bipartisan support; in fact, many of the core ideas incorporated 
into the bill originated from my Republican colleagues.
  Critics of this legislation have said that it tackles the wrong 
problems, hurts small banks and businesses, and burdens struggling 
financial institutions. I appreciate those points of view, but feel 
very confident in saying we have taken specific steps to ensure that 
small banks and businesses are not negatively affected, to make it more 
difficult for firms to take dangerous risks, and to strike the right 
balance between regulation and flexibility. But the bottom line is 
this: the kind of free-wheeling, self-regulating, anything goes 
environment that we had before the crisis is simply not an option.
  There are certainly provisions in this bill that I would have written 
differently as any of my colleagues would if we wrote this legislation 
ourselves. But that is not how the Senate and our legislative system 
works, and overall I think this conference report is very strong 
legislation. I look forward to its passage.
  There is no doubt that after the President signs this bill into law, 
there will be an important focus on implementing this legislation 
correctly, as well as continued oversight by Congress of the agencies 
and covered financial institutions, and efforts at international 
coordination with our counterparts in other countries. It is also

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likely that there may need to be corrections and adjustments to the 
bill in the future. That said, passage of this bill is important to our 
nation's economic recovery, and we must get it to the President's desk.
  Mrs. HAGAN. Madam President, I rise today to discuss the conference 
agreement on financial services regulatory reform and specifically an 
issue in section 619 of title VI, known as the Volcker rule. The 
section's limitations on financial organizations that own a depository 
institution from investing or sponsoring in hedge funds or investments 
in private equity to 3 percent of an organization's assets, in the 
aggregate, references ``tier 1 capital.''
  The term ``tier 1 capital'' is a concept currently applied strictly 
to banks and bank holding companies and consists of core capital, which 
includes equity capital and disclosed reserves. However, there are 
financial organizations subject to the Volcker rule's investment 
constraints that do not have a principal regulator that utilizes tier 1 
capital measurements to determine an entity's financial strength. In 
order to ensure a level playing field with traditional banks, I would 
hope the appropriate regulators would determine a suitable equivalent 
of tier 1 capital to determine the investment limit, while still 
satisfying the intent of the Volcker rule.
  I ask the regulators to make certain that these types of financial 
organizations will be subject to the Volcker rule in a manner that 
takes into account their unique structure.
  In addition, I am pleased that as part of the conference report that 
the Volcker language was modified to permit a banking entity to engage 
in a certain level of traditional asset management business, including 
the ability to sponsor and offer hedge and private equity funds. With 
that in mind, I wanted to clarify certain details around this 
authority.
  First, I was pleased to see that the Volcker Rule, as modified, will 
permit banking entities several years to bring their full range of 
activities into conformance with the new rule. In particular, section 
619(c)(2) ensures that the new investment restrictions under section 
619(d)(1)(G)(iii) and section 619(d)(4)--including the numerical 
limitations under section 619(d)(4)(B)(ii)--will only apply to a 
banking entity at the end of the period that is 2 years after the 
section's effective date. This date for the regulators to begin 
applying the new rules can also be extended into the future for up to 
three 1-year periods under section 619(c)(2) and can also separately be 
extended for illiquid funds with contractual commitments as of May 1, 
2010, under section 619(c)(3), on a one-time basis for up to 5 years. 
Only after all of these time periods and extensions have run will any 
of the limitations under section 619(d)(1)(G) and section 619(d)(4) be 
applied by regulators.
  Second, as an added protection, section 619(f) applies sections 23A 
and 23B of the Federal Reserve Act to transactions between all of a 
banking entity's affiliates and hedge or private equity funds where the 
banking entity organizes, offers, serves as an investment manager, 
investment adviser, or sponsor of such funds under section 619(d). 
These restrictions are also applied to transactions between a banking 
entity's affiliates and other funds that are ``controlled'' by a hedge 
or private equity fund permitted for the banking entity under 619(d). 
Importantly, these 23A and 23B restrictions do not apply to funds not 
``controlled'' by funds permitted for the banking entity under section 
619(d), and it should also be clear that under section 619 there are no 
new restrictions or limitations of any type placed on the portfolio 
investments of any hedge or private equity fund permitted for a banking 
entity under section 619.
  Third, as a condition of sponsorship, section 619(d)(1)(G)(v) 
requires that a banking entity does not, directly or indirectly, 
guarantee or assume or otherwise insure the obligations or performance 
of any sponsored hedge or private equity fund or of any other hedge or 
private equity fund in which the sponsored fund invests. While this 
restricts guarantees by the banking entity as well as the insuring of 
obligation or performance, it does not limit other normal banking 
relations with funds merely due to a noncontrol investment by a fund 
sponsored by the banking entity. As described above, section 619(f) 
limits transactions under 23A and 23B of the Federal Reserve Act with a 
fund ``controlled'' by the banking entity or a fund sponsored by the 
banking entity. However, 619(f) does not limit in any manner 
transactions and normal banking relationships with a fund not 
``controlled'' by the banking entity or a fund sponsored by the banking 
entity.
  Finally, section 619(d)(4)(I) permits certain banking entities to 
operate hedge and private equity funds outside of the United States 
provided that no ownership interest in any hedge or private equity fund 
is offered for sale or sold to a U.S. resident. For consistency's sake, 
I would expect that, apart from the U.S. marketing restrictions, these 
provisions will be applied by the regulators in conformity with and 
incorporating the Federal Reserve's current precedents, rulings, 
positions, and practices under sections 4(c)(9) and 4(c)(13) of the 
Bank Holding Company Act so as to provide greater certainty and utilize 
the established legal framework for funds operated by bank holding 
companies outside of the United States.
  The PRESIDING OFFICER. The Senator from New Hampshire.
  Mr. GREGG. Madam President, let me begin by thanking the Senator from 
Connecticut and congratulating him. He has been pretty effective in his 
last year in the Senate. He got a lot of stuff moving and a lot of 
stuff through. And I have not agreed with all of it, by the way. Most 
importantly, he has done it in a fair and balanced way, always with a 
sense of humor and an openness and willingness to listen to those with 
whom he may not agree entirely and allow us to participate at the table 
in discussions about the problems at the very beginning of the process 
in a very substantial way. So I thank him for his courtesy and for the 
way he runs the committee and the way he ran the HELP Committee when he 
succeeded to that leadership on the unfortunate passing of Senator 
Kennedy. It has been a pleasure to serve with him on this bill and on 
some very significant issues as we tried to work through them.
  I have reservations about this bill--they are more than reservations. 
I, obviously, believe the bill doesn't get us to where we need to go. 
When we started on this effort, our purpose was, in the beginning, 
twofold: First, we wanted to make sure we could do everything we could 
to build into the system of regulatory atmosphere and the marketplace 
the brakes and the ability to avoid another systemic meltdown of the 
type we had in late 2008, which was a traumatic event.
  Nobody should underestimate how significant the events of late 2008 
were. If action had not been taken under the TARP proposal, and under 
the leadership of President Bush, Secretary Paulson, and then President 
Obama and Secretary Geithner, this country would have gone into a much 
more severe economic situation--probably a depression. Secretary 
Paulson once estimated the unemployment rate would have gone to 25 
percent. The simple fact is the entire banking system would have 
probably imploded--most likely imploded--and certainly Main Street 
America would have been put in dire straits.
  But action was taken. It was difficult action. We are still hearing 
about the ramifications of it, but it was the right action, and it has 
led to a stabilization of the financial industry. But we never want to 
have to see that happen again. We never want to have to go through that 
type of trauma again as a nation, where our entire financial community 
is teetering. So the purpose of this bill should be to put in place a 
series of initiatives which will hopefully mute that type of potential 
for another event of a systemic meltdown.
  The second purpose of this bill--and it is an equally important 
purpose--is that we not do something that harms one of the unique 
strengths and characteristics of our Nation, where if you are an 
entrepreneur and have an idea

[[Page 13155]]

and are willing to take a risk and try to create jobs, you can get 
credit and capital reasonably easily compared to the rest of the world. 
That has been the engine of the economic prosperity of our Nation--the 
availability of credit and capital, reasonably priced and reasonably 
available to entrepreneurs in our Nation.
  Those should have been our two goals. If we match this bill to those 
goals, does it meet the test of meeting those goals? Unfortunately, I 
don't think it does. There are some very positive things in the bill. 
The resolution authority is a good product in this bill, and it will, 
in my opinion--though I know there is a lot of discussion about this--
pretty much bring an end to the concept of too big to fail.
  If an institution gets overleveraged to a point where it is no longer 
sustainable, and it is a systemic risk institution, it is going to be 
collapsed. The stockholders will be wiped out, the unsecured bond 
holders will be wiped out, and the institution will be resolved under 
this bill.
  That is positive because we do not want to send to the markets a 
signal that the American taxpayer is going to stand behind institutions 
which are simply large. That perverts capital in the markets, and it 
perverts flow of economic activity in the markets when people think 
there is that sort of guarantee standing behind certain institutions in 
this country. And I think progress is made in this bill on the issue of 
resolution.
  But, unfortunately, in a number of other areas, the opportunity to do 
something constructive was not accomplished. In fact, in my opinion, 
there will be results from this bill which will cause us to see a 
negative effect from this bill. The most negative effects I think will 
occur from this bill lie in two areas. First, in the area of the 
formation of credit.
  It is very obvious that under this bill there is going to be a very 
significant contraction of credit in this country as we head into the 
next year, 2 years, maybe even 3 years. We are in a tough fiscal time 
right now. It is still very difficult on Main Street America to get 
credit. The economy is slow. We should not be passing a bill which is 
going to significantly dampen down credit, but it will. This bill will. 
It will for three reasons:
  First, the derivatives language in this bill is not well thought out. 
It just isn't. Most people don't understand what derivatives are, but 
let's describe them as the grease that gets credit going in this 
country and everywhere. It is basically insurance products that allow 
people to do business and make sure they can insure over the risks that 
they have in a business. This bill creates a new regime for how we 
handle derivatives in this country.
  Our goal should have been to make derivatives more transparent and 
sounder. That could have been done easily by making sure most 
derivatives were on over-the-counter exchanges--went through 
clearinghouses I mean, and had adequate margins behind them, adequate 
liquidity behind them, and were reported immediately to the credit 
reporting agencies as to what they were doing. It didn't involve a lot 
of complications, just changing the rules of the road. Instead of doing 
that, we have changed the entire process. In changing the entire 
process, we are basically going to contract significantly the 
availability of these products to basically fund and to be the engine 
or the grease or the lubricant for the ability of a lot of American 
businesses to do business.
  End users in this country who use derivatives are going to find it 
very hard to have an exemption. They are basically going to have to put 
up capital, put up margin--something they do not do today on commercial 
derivative products--and that is going to cause them to contract their 
business. They will have to contract their business or they are going 
to have to go overseas. Believe me, there is a vibrant market in 
derivatives overseas. They will go to London, and this business will 
end up offshore.
  Then we have this push to put everything on an exchange. Well, there 
are a lot of derivatives that obviously should go through 
clearinghouses but are too customized to go on exchanges, and we are 
going to end up inevitably with a contraction in the derivatives market 
as a result.
  Then we have the swap desk initiative, which was simply a punitive 
exercise, in my opinion. It is going to accomplish virtually nothing in 
the area of making the system sounder or more stable. But what it will 
do is move a large section of derivative activity--especially the CDS 
markets--offshore. They will go offshore because they will not be done 
here any longer. Banks and financial houses which historically have 
written these instruments are not going to put up the capital to write 
them because they don't get a return that makes it worth it to them.
  I guarantee we are going to see a massive contraction in a number of 
derivatives markets as a result of this swap desk initiative, which was 
more a political initiative than a substantive initiative, and which is 
counterproductive. It is a ``cut off your nose to spite your face'' 
initiative, and it will move overseas a lot of the products we do here 
and make it harder for Americans to be competitive--especially for 
financial services industries to be competitive--in the United States. 
So that will cause a contraction and a fairly big one.
  The estimates are that the contraction may be as high as $\3/4\ 
trillion. That is a lot of credit taken out of the system. On top of 
that, there is the issue of the new capital rules in this bill.
  It isn't constructive for the Congress to set arbitrary capital 
rules. That should be left to the regulators. But this bill pretty much 
does that. As a result, a lot of the regional banks, the middle-sized 
banks--the larger banks would not be affected too much--will find they 
are under tremendous pressure as their tier I capital has to be 
restructured relative to trust preferred stock.
  This is not a good idea because, as a practical matter, we will again 
cause a contraction in the market of capital--of credit. As banks grow 
their capital, they will have to contract credit. When a bank has to 
get money back in order to build its capital position up, it doesn't go 
to its bad loans because the bad loans aren't performing. It goes to 
its good loans, and it doesn't lend to them. Or it says: We are going 
to draw down your line of credit, because that is where they can get 
capital. That is what will happen, and we will see capital contract 
there.
  On top of that, we have the Volcker rule. The concept is a very good 
idea. We should never have banks using insured deposits to do their 
proprietary activity. But straightening out what this Volcker rule 
means will take a while. It may be a year or two before anybody can 
sort out what it means and before the regulations come down that define 
it. So there will be a period of uncertainty, and that uncertainty 
means less credit available.
  Of course, this is another situation where the international banks 
are the winners and the domestic banks are the losers because the 
international banks will be able to go and do the same business--the 
proprietary trade--in London, if they are based in London or in 
Singapore, if they are based in Singapore or Tokyo, if they are based 
in Tokyo. But the American banks they compete with aren't going to be 
able to do it. So that makes no sense at all.
  But as a practical matter, that is what this bill does. So we will 
end up again with a tentativeness in the markets as to what they are 
supposed to be doing and what they can do in the area relative to the 
Volcker rule, and this will end up creating further credit 
contractions.
  So my guess is, when we add it all together, this bill will lead to a 
credit contraction of probably $1 trillion or more in our economy. What 
does that translate into? It translates into fewer jobs and less 
economic activity. It didn't have to happen this way. This could have 
been done in a way that would have been clearer, where the clarity 
would have been greater, and where we would not have had to take 
arbitrary action which was more political than substantive to address 
what problems in the industry did exist and should have been addressed.

[[Page 13156]]

  Another area of concern, of course, is this consumer agency. Consumer 
protection is critical. We all agree to that. What we proposed on our 
side of the aisle was that we link consumer protection and safety and 
soundness at the same level of responsibility and the same level of 
authority within the entire bank regulatory system so that the 
prudential regulator--whether it is the Fed or the Office of the 
Comptroller--when they go out to regulate a bank and check on it for 
safety and soundness--or the FDIC--they, at the same time, have the 
same standard of importance placed on making sure that the consumer is 
being protected in the way that bank deals with the consumers. That is 
the way it should be done. The two should be linked because the 
regulator that regulates the bank for safety and soundness is the 
logical regulator to regulate the bank to make sure it is complying 
with consumers' needs.
  But this bill sets up this brandnew agency, which it calls consumer 
protection, but it will not be at all, in my opinion. It will be the 
agency for political correctness or correcting political justice or 
issues of political justice that somebody is concerned about. It is 
totally independent of everybody else. It doesn't answer to anyone 
except on a very limited and narrow way to the systemic risk council. 
It is a single person with an $850 million unoversighted revenue stream 
with no appropriations. Basically, the person just gets the money and 
can go off and do whatever they want. There is no relationship between 
this person and the prudential regulator. So what we will have is an 
individual who may get on a cause of social justice and say that XYZ 
group isn't getting enough loans, and they go out to the banks and say: 
You have to send XYZ group more loans.
  We might have the bank regulator over here saying to the local banks, 
the regional banks: You can't lend to XYZ group because we know they 
are not going to pay you back or they will not pay you back at a rate 
that is reasonable. So we are going to have this inherent conflict.
  Now, what will be the result of that? The banks will probably have to 
lend to the XYZ group, which means the people borrowing from that bank 
who pay their loans back will have to pay more because the bank will 
have to make up for the loss of revenues. As a result, the cost of 
credit will go up, especially for individuals who are responsible and 
paying down their debts and paying for their credit--paying back their 
loans. We are going to end up with layers and layers of conflicting 
regulation which will cost the banking community money--a significant 
amount of unnecessary money.
  Who pays for that? Well, the consumer pays for it. Clearly, that gets 
passed through. This is one of those Rube Goldberg ideas that can only 
come out of a government entity. They used to say: You know, the 
government produces a camel when it is supposed to be producing a 
horse.
  There is just a disconnect between the reality of what we are 
supposed to be doing in the area of producing effective regulation 
relative to protecting consumers and what this bill ends up finally 
doing.
  I would not be here to oversee it or participate in it. In fact, 
nobody gets to oversee it, by the way. This consumer protection agency 
is not responsible to the Banking Committee of the Senate or the 
Banking Committee of the House. It is not responsible to the Fed. This 
person is a true czar.
  The term ``czar'' is thrown around here a lot, but this person is a 
true czar in the area of consumer activity. I suspect we will see that 
this agency becomes a very controversial agency, with a very political 
social justice type agenda, not an agenda which is aimed at primarily 
protecting consumers.
  So that is a big problem with this bill, and there are a lot of other 
issues with this bill. At the margin, the issue of how we restructure 
the regulatory regimes is of some concern, the whole question of how 
stockholders' rights in this bill--and probably not relevant to the 
banking issue so much--could have been improved on. The bill overall 
could have been a much better product. But the primary concern I have 
goes back to this issue of what was the original purpose--to protect 
systemic risk in the outyears and make sure we continue to have a 
strong and vibrant credit market for Americans who want to take risks 
and create jobs.
  Two major issues were totally ignored in the bill which would address 
that question: What drove the event of this meltdown? What caused this 
financial downturn? It was the real estate market and the way it was 
being lent into. Two things were the basic engines of that problem, 
that were government controlled. There were a lot of things which 
caused it, but the two things which the government controlled were, No. 
1, underwriting standards. Basically we divorced underwriting standards 
from the issue of whether a person got a loan, so loans were being made 
on assets which could not cover the cost of the loan. It was presumed 
the asset was going to appreciate, a home was always going to 
appreciate in these communities and therefore they could loan at 100 
percent of the value of the home or 105 percent of the value and still 
have a safe loan. That was a foolish assumption, to say the least.
  Second, we didn't look at whether the person could pay the loans back 
when these loans were made at zero interest for a year or 2 years. But 
then they reset, these loans reset at a fairly reasonable or sometimes 
very unreasonable interest rate and nobody looked at whether the person 
could pay them back.
  These loans were being made not for the purposes of actually 
recovering the loans. That was not the reason these loans were being 
made. These subprime loans were being made because there were fees on 
the loans and the people making the loans were getting the fees. There 
was a whole cottage industry of people down in Miami who had just 
gotten out of prison who figured this out while they were in prison and 
they developed an entire cottage industry of former prisoners who had 
been released, legally, and actually went back into the loan business 
and were making these loans and getting the fees.
  Then what aggravated it--first what aggravated it was the 
underwriting standards, but then it was that these loans got 
securitized. They got picked up by Freddie Mac and Fannie Mae, with the 
understanding--it was implicit but it was obvious, as we found out--
that Fannie Mae and Freddie Mac would essentially insure these loans. 
So if you bought one of these securitized loans, Fannie Mae and Freddie 
Mac would be standing behind it even though the loans were not viable.
  This bill ignores both those issues. It has very marginal language on 
the issue of underwriting. It doesn't get us back to standards which 
would basically protect us from overly aggressive underwriting.
  People say Canada did not have a problem, Australia didn't have a 
problem. Why didn't they have a problem? They didn't have a problem 
because they required people who were borrowing to put money down and 
they required that people who were borrowing actually be able to pay 
the money back. It seems like a perfectly reasonable thing to require, 
but this bill ignores it.
  Second, this bill does nothing about Fannie or Freddie--nothing. Talk 
about ignoring the elephant in the room, this is the whole herd of 
elephants in the room. The American taxpayer today is on the hook for 
something like $500 billion to $1 trillion. The estimates vary. Some 
people say it is even higher than that--the American taxpayer, for bad 
loans, securitized by Fannie and Freddie. This bill says nothing. It is 
as if this problem doesn't exist. It is as if this problem doesn't 
exist. Not only was it one of the primary drivers of the financial 
meltdown but it is one of the biggest problems we have going forward. 
The administration says we will do it next year. Well, if you do a 
financial reform bill without Fannie and Freddie, you essentially are 
not doing a financial reform bill at all. I apply the same to the issue 
of underwriting.
  In my opinion, this bill has some pluses. I know this was worked very 
hard and I admire the efforts of the

[[Page 13157]]

Senator from Connecticut and actually the chairman in the House, 
Congressman Frank from Massachusetts. But the negatives of this bill 
unfortunately are too significant to ignore, especially in the area of 
the short-term credit contraction that is going to occur, the poorly 
structured derivatives language, the Consumer Protection Agency--which 
I think is going to end up being counterproductive to consumers--and 
the failure to take up the Freddie and Fannie issue, and the failure to 
do stronger underwriting standards.
  For that reason, I remain opposed to this bill. I understand it is 
going to pass. I hope some of my concerns do not come to fruition 
because, if they do, unfortunately this economy is going to be slowed 
and our Nation will be less viable economically. But I am afraid they 
will come to fruition.
  I yield the floor.
  The PRESIDING OFFICER (Mr. Burris). The Senator from Connecticut is 
recognized
  Mr. DODD. I see my other colleagues here, including Senator Specter 
who wants to be heard, but I want to address my colleague from New 
Hampshire because we are both going to be walking out of this Chamber 
in about 5 months. I thank him for his work going back to 20-some-odd 
months ago when we were involved in the critical weeks and days in 
September and October. Judd Gregg was invaluable putting together a 
moment here while, not terribly popular, I think saved the economy and 
the country. I will not address all his concerns here. We have a 
different point of view on the issues he raised. They are not 
illegitimate issues. We think we addressed them properly. He has a 
different view, and I respect that. I appreciate his work and that of 
his staff on this bill. He made a significant contribution to this 
effort and I thank him for it.
  I see my colleague from Pennsylvania here and I yield the floor.
  The PRESIDING OFFICER. The Senator from Pennsylvania is recognized.
  Mr. SPECTER. Mr. President, at the outset I wish to ascertain with 
precision that I have 20 minutes, as had been arranged with the floor 
monitors. I had looked for 30 but I ask consent I may speak for up to 
20 minutes now.
  The PRESIDING OFFICER. Is there objection?
  Mr. DODD. Reserving the right to object, I want to be clear so my 
colleague will understand this. I had a sheet of paper in front of me--
I do not have it in front of me now--with the order of those who sought 
time. I want to be careful, as my colleague from Pennsylvania will 
understand. We are going to vote at 2 o'clock. I want to be sure I can 
accommodate my colleagues.
  The PRESIDING OFFICER. Twenty-three minutes remains to the majority.
  Mr. DODD. I know Senator Conrad, chairman of the Budget Committee, 
has to be heard and it is critical to me he be heard on the budget 
point of order.
  Could you make it a little less than 20?
  Mr. SPECTER. I really cannot. I had started at 30 and 20 is tough. 
How early might I return for my 30 minutes?
  Mr. DODD. After 2 o'clock? Any point after----
  Mr. SPECTER. I ask unanimous consent I may have 30 minutes when the 
two votes which are scheduled for 2 o'clock conclude.
  Mr. DODD. Certainly I would have no objection to that whatsoever. 
Take some time at this juncture too, if you wish.
  Mr. SPECTER. I will do it all at once. I don't want to truncate it.
  I ask unanimous consent that I may have the floor for 30 minutes at 
the conclusion of the two votes scheduled for 2 o'clock.
  The PRESIDING OFFICER. Is there objection?
  Mr. DODD. Again, let me reserve the right to object. I see the 
minority wants to check on such a request. I have no objection myself 
but obviously that is a matter--in fairness to the minority, we want to 
let them know of such a request. Here we are eating up time right now. 
I see my friend from North Dakota here as well. I am deeply grateful to 
the chairman of the Budget Committee.
  Go ahead with that request. I am told it is OK.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. SPECTER. I thank the Chair and my colleague and the unknown 
persons in the cloakroom.
  Mr. DODD. I thank my colleague from Pennsylvania and the unknown 
persons in the cloakroom. Let the record show they acknowledged the 
Senator's request.
  The PRESIDING OFFICER. The Senator from North Dakota is recognized.
  Mr. CONRAD. Mr. President, I come to the floor to discuss the budget 
point of order that has been raised against the financial reform 
conference report. I will be voting to waive this point of order. As 
Budget Committee chairman, I do not take this step lightly. In fact, 
the point of order that has been offered is a point of order that I 
created in the 2008 budget, so it is something I feel strongly about as 
a general matter. But its applicability here is false in the face of 
the importance of the legislation we need to consider.
  The legislation before us is critical to our economic strength. I 
think we all understand that financial reform is long overdue. It has 
been almost 2 years since the financial sector collapse brought our 
economy to the brink of global financial collapse. I was in the room 
and Senator Dodd was in the room when we were informed by the Chairman 
of the Federal Reserve and the Secretary of the Treasury in the 
previous administration that if we failed to act at that dire moment, 
we could face a global financial collapse. That is how serious it was.
  Now that the economy has stabilized, it is easy to forget the crisis 
that swept through the financial markets and threw us into the worst 
downturn since the Great Depression--in fact, which risked a second 
great depression. But we cannot afford to forget. We need to remember 
that the problems on Wall Street and in our financial sector have a 
direct impact on Main Street and the lives of every American. We need 
to ensure that taxpayers are never again asked to bail out Wall Street.
  This financial reform legislation will prevent another financial 
sector collapse, or at least will help prevent it. I do not think any 
of us can say this will prevent any future collapse, but it is 
critically important to helping us prevent another collapse. It will 
allow the government to shut down firms that threaten to crater our 
economy and ensure that the financial industry, not taxpayers, is on 
the hook for any costs. It will rein in risky derivatives and other 
risky trading practices that undermined some of our largest financial 
institutions. It will help level the playing field for smaller banks 
and credit unions by cracking down on the risky practices of Wall 
Street and nonbank financial institutions that caused the financial 
crisis.
  I am grateful to Senator Dodd, the Banking Committee, and members of 
the conference for working with me to make certain that the final bill 
recognizes the special circumstances of community banks and credit 
unions in rural States such as mine. In particular, I appreciate the 
committee's modification to the lending limit standards. This is very 
important to farming communities across the country.
  The final bill also provides added flexibility for rural lenders in 
the new mortgage standards as well as provisions to improve interchange 
reform for smaller financial institutions. Finally, I am pleased the 
committee included a risk-focused deposit insurance fund assessment 
formula and modified risk retention requirements for high quality 
loans.
  Especially I thank Senator Dodd for his extraordinary leadership. 
What a final year in the Senate. What a remarkable legacy he is 
leaving. I think the annals of the Senate will show very few Senators 
have had a record of accomplishment that matches what Senator Dodd will 
have done in this year.
  With respect to the budget point of order that has been raised 
against the conference report, let me make a couple of general points. 
First, this budget violation is not significant enough to merit 
derailing this important legislation. Second, we must bear in mind the

[[Page 13158]]

risks of failing to act. If we fail to protect against a future 
collapse and create an orderly process for dealing with giant insolvent 
financial institutions, it is inevitable that taxpayers will again at 
some future point be asked to bail out the financial sector and prevent 
a catastrophic financial collapse. If one measures on any scale the 
differences between the technical violation in this budget point of 
order against what would happen if this legislation fails, they cannot 
even be compared. I mean, it is a gnat against an elephant. So let's 
keep things in mind here.
  Second, we must bear in mind the risk of failing to act because that 
would burden taxpayers in a way far beyond anything we see with this 
budget point of order. None of us wants that. This bill is an insurance 
policy against an expensive future taxpayer bailout.
  The point of order that has been raised is the long-term deficit 
point of order, a point of order I established in the budget resolution 
of 2008. This point of order prohibits legislation that worsens the 
deficit by more than $5 billion in any of the four 10-year periods 
following 2019.
  CBO has determined that at least in one of those four 10-year 
periods, the conference report would exceed this threshold. But this is 
really just a timing issue caused by the new bipartisan resolution 
authority created by the bill. This is the new authority given to the 
government to wind down failing financial firms. Under the resolution 
authority, if a financial firm is about to collapse, the government 
will use the firm's assets to wind it down and put it out of business. 
If the firm's assets are insufficient, the government will temporarily 
borrow funds from the Treasury. The financial industry will then 
reimburse the government and the taxpayers for 100 percent of the cost. 
Again, 100 percent of the money will be paid back by the banks. So the 
net impact on the deficit is zero.
  Overall, the bill saves $3.2 billion over the first 10 years, 
according to the Congressional Budget Office. So while technically this 
budget point of order lies, if you pierce the veil and look at what 
really happens, this bill reduces the deficit, according to the 
Congressional Budget Office, which is the nonpartisan scorekeeper here 
in the Senate. Because there is a lag time for the government to 
collect this money from the financial industry, CBO scores the bill as 
increasing the deficit in some of the later decades. But all of that 
money will be paid back in ensuing years, and that is what matters most 
in this case.
  So although this bill does technically violate the long-term deficit 
point of order, it is insignificant. The fact is, this bill reduces the 
deficit, according to the Congressional Budget Office. So I urge my 
colleagues to waive the point of order, to support passage of this 
financial reform legislation, which is clearly a significant step in 
the right direction in preventing the kind of risk to our Nation's 
economy that is so apparent with the current structure.
  Again, I thank the chairman for his extraordinary work not only on 
this bill but throughout the year and, I think all of us know, 
throughout his career.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Connecticut
  Mr. DODD. Mr. President, before my friend, the chairman of the Budget 
Committee, leaves, let me thank him immensely for his analysis of this 
issue. He has it, as we saw as well, exactly right. In fact, it is not 
only repaying 100 percent but with interest. There is an interest 
requirement, that if we borrow from the taxpayers in order to wind down 
substantially risky firms, then not only do you get paid back, but the 
interest on the cost of that money is also part of the deal. So it is 
100 percent-plus coming back to the Treasury.
  But his analysis and that of his committee--and there is no one who 
has been more disciplined or guarded about the budgetary process over 
the years we have served together, and so I appreciate the Senator's 
analysis of this particular point on the long-term deficit.
  I commend the Senator for including the provisions he has and trying 
to build some discipline into the process of how we expend taxpayer 
moneys, collect taxes in the first place to pay for the needed 
expenditures of our government. So I thank the Senator for that.
  I thank him for his comments as well about the bill and his support 
and also the substantive contributions the Senator from North Dakota 
has made, because one of the things we tried to be very careful about--
Jon Tester of Montana, who sits on the committee with me, has been very 
careful and been tremendously active in seeing to it that rural America 
is going to be well served by this legislation. And there are 
differences. It is not all Wall Street, New York, and major financial 
centers. The importance of the availability of credit in rural 
communities is critical, as my colleague from North Dakota has informed 
me over the years we have served together. That ability of a local 
farmer to borrow that money in the spring, to be able to pay back in 
the fall, at harvest time, has been essential, and knowing how 
difficult it has been throughout the country to have access to credit 
is essential.
  So his contributions to the legislation make sure that what we do 
here is going to enhance the capability of rural America to not only 
come out of this crisis we are in but to prosper in the years ahead 
with this legislation. So beyond the budgetary considerations and the 
points of order before us, I thank him for his contributions to the 
substance of the bill, which has made it a far better bill to begin 
with.
  I see my colleague from Oregon is here. I yield the floor.
  The PRESIDING OFFICER. The Senator from Oregon is recognized.
  Mr. MERKLEY. Mr. President, I thank Chairman Dodd for yielding to me 
and for his leadership on financial reform.
  I yield to Senator Levin.
  Mr. LEVIN. Mr. President, Senator Merkley and I, as the principal 
authors of sections 619, 620, and 621 of the Dodd-Frank Act, thought it 
might be helpful to explain in some detail those sections, which are 
based on our bill, S. 3098, called the Protect Our Recovery Through 
Oversight of Proprietary, PROP, Trading Act of 2010, and the 
subsequently filed Merkley-Levin Amendment, No. 4101, to the Dodd-
Lincoln substitute, which was the basis of the provision adopted by the 
Conference Committee.
  I yield the floor to my colleague, Senator Merkley.
  Mr. MERKLEY. I thank Senator Levin and will be setting forth here our 
joint explanation of the Merkley-Levin provisions of the Dodd-Frank 
Act. Sections 619, 620 and 621 do three things: prohibit high-risk 
proprietary trading at banks, limit the systemic risk of such 
activities at systemically significant nonbank financial companies, and 
prohibit material conflicts of interest in asset-backed 
securitizations.
  Sections 619 and 620 amend the Bank Holding Company Act of 1956 to 
broadly prohibit proprietary trading, while nevertheless permitting 
certain activities that may technically fall within the definition of 
proprietary trading but which are, in fact, safer, client-oriented 
financial services. To account for the additional risk of proprietary 
trading among systemically critical financial firms that are not banks, 
bank holding companies, or the like, the sections require nonbank 
financial companies supervised by the Federal Reserve Board, the 
``Board'', to keep additional capital for their proprietary trading 
activities and subject them to quantitative limits on those activities. 
In addition, given the unique control that firms who package and sell 
asset-backed securities (including synthetic asset-backed securities) 
have over transactions involving those securities, section 621 protects 
purchasers by prohibiting those firms from engaging in transactions 
that involve or result in material conflicts of interest.
  First, it is important to remind our colleagues how the financial 
crisis of the past several years came to pass. Beginning in the 1980's, 
new financial products and significant amounts of deregulation 
undermined the Glass-

[[Page 13159]]

Steagall Act's separation of commercial banking from securities 
brokerage or ``investment banking'' that had kept our banking system 
relatively safe since 1933.
  Over time, commercial and investment banks increasingly relied on 
precarious short term funding sources, while at the same time 
significantly increasing their leverage. It was as if our banks and 
securities firms, in competing against one another, were race car 
drivers taking the curves ever more tightly and at ever faster speeds. 
Meanwhile, to match their short-term funding sources, commercial and 
investment banks drove into increasingly risky, short-term, and 
sometimes theoretically hedged, proprietary trading. When markets took 
unexpected turns, such as when Russia defaulted on its debt and when 
the U.S. mortgage-backed securities market collapsed, liquidity 
evaporated, and financial firms became insolvent very rapidly. No 
amount of capital could provide a sufficient buffer in such situations.
  In the face of the worst financial crisis in 60 years, the January 
2009 report by the Group of 30, an international group of financial 
experts, placed blame squarely on proprietary trading. This report, 
largely authored by former Federal Reserve System Chairman Paul 
Volcker, recommended prohibiting systemically critical banking 
institutions from trading in securities and other products for their 
own accounts. In January 2010, President Barack Obama gave his full 
support to common-sense restrictions on proprietary trading and fund 
investing, which he coined the ``Volcker Rule.''
  The ``Volcker Rule,'' which Senator Levin and I drafted and have 
championed in the Senate, and which is embodied in section 619, 
embraces the spirit of the Glass-Steagall Act's separation of 
``commercial'' from ``investment'' banking by restoring a protective 
barrier around our critical financial infrastructure. It covers not 
simply securities, but also derivatives and other financial products. 
It applies not only to banks, but also to nonbank financial firms whose 
size and function render them systemically significant.
  While the intent of section 619 is to restore the purpose of the 
Glass-Steagall barrier between commercial and investment banks, we also 
update that barrier to reflect the modern financial world and permit a 
broad array of low-risk, client-oriented financial services. As a 
result, the barrier constructed in section 619 will not restrict most 
financial firms.
  Section 619 is intended to limit proprietary trading by banking 
entities and systemically significant nonbank financial companies. 
Properly implemented, section 619's limits will tamp down on the risk 
to the system arising from firms competing to obtain greater and 
greater returns by increasing the size, leverage, and riskiness of 
their trades. This is a critical part of ending too big to fail 
financial firms. In addition, section 619 seeks to reorient the U.S. 
banking system away from leveraged, short-term speculation and instead 
towards the safe and sound provision of long-term credit to families 
and business enterprises.
  We recognize that regulators are essential partners in the 
legislative process. Because regulatory interpretation is so critical 
to the success of the rule, we will now set forth, as the principal 
authors of Sections 619 to 621, our explanations of how these 
provisions work.
  Section 619's prohibitions and restrictions on proprietary trading 
are set forth in a new section 13 to the Bank Holding Company Act of 
1956, and subsection (a), paragraph (1) establishes the basic principle 
clearly: a banking entity shall not ``engage in proprietary trading'' 
or ``acquire or retain . . . ownership interest[s] in or sponsor a 
hedge fund or private equity fund'', unless otherwise provided in the 
section. Paragraph (2) establishes the principle for nonbank financial 
companies supervised by the Board by subjecting their proprietary 
trading activities to quantitative restrictions and additional capital 
charges. Such quantitative limits and capital charges are to be set by 
the regulators to address risks similar to those which lead to the flat 
prohibition for banking entities.
  Subsection (h), paragraph (1) defines ``banking entity'' to be any 
insured depository institution (as otherwise defined under the Bank 
Holding Company Act), any entity that controls an insured depository 
institution, any entity that is treated as a bank holding company under 
section 8 of the International Banking Act of 1978, and any affiliates 
or subsidiaries of such entities. We and the Congress specifically 
rejected proposals to exclude the affiliates and subsidiaries of bank 
holding companies and insured depository institutions, because it was 
obvious that restricting a bank, but not its affiliates and 
subsidiaries, would ultimately be ineffective in restraining the type 
of high-risk proprietary trading that can undermine an insured 
depository institution.
  The provision recognizes the modern reality that it is difficult to 
separate the fate of a bank and its bank holding company, and that for 
the bank holding company to be a source of strength to the bank, its 
activities, and those of its other subsidiaries and affiliates, cannot 
be at such great risk as to imperil the bank. We also note that not all 
banks pose the same risks. Accordingly, the paragraph provides a narrow 
exception for insured depository institutions that function principally 
for trust purposes and do not hold public depositor money, make loans, 
or access Federal Reserve lending or payment services. These 
specialized entities that offer very limited trust services are 
elsewhere carved out of the definition of ``bank,'' so we do not treat 
them as banks for the purposes of the restriction on proprietary 
trading. However, such institutions are covered by the restriction if 
they qualify under the provisions covering systemically important 
nonbank financial companies.
  Subsection (h), paragraph (3) defines nonbank financial companies 
supervised by the Board to be those financial companies whose size, 
interconnectedness, or core functions are of sufficiently systemic 
significance as to warrant additional supervision, as directed by the 
Financial Stability Oversight Council pursuant to Title I of the Dodd-
Frank Act. Given the varied nature of such nonbank financial companies, 
for some of which proprietary trading is effectively their business, an 
outright statutory prohibition on such trading was not warranted. 
Instead, the risks posed by their proprietary trading is addressed 
through robust capital charges and quantitative limits that increase 
with the size, interconnectedness, and systemic importance of the 
business functions of the nonbank financial firm. These restrictions 
should become stricter as size, leverage, and other factors increase. 
As with banking entities, these restrictions should also help reduce 
the size and risk of these financial firms.
  Naturally, the definition of ``proprietary trading'' is critical to 
the provision. For the purposes of section 13, proprietary trading 
means ``engaging as a principal for the trading account'' in 
transactions to ``purchase or sell, or otherwise acquire or dispose 
of'' a wide range of traded financial products, including securities, 
derivatives, futures, and options. There are essentially three key 
elements to the definition: (1) the firm must be acting ``as a 
principal,'' (2) the trading must be in its ``trading account'' or 
another similar account, and (3) the restrictions apply to the full 
range of its financial instruments.
  Purchasing or selling ``as a principal'' refers to when the firm 
purchases or sells the relevant financial instrument for its own 
account. The prohibition on proprietary trading does not cover trading 
engaged with exclusively client funds.
  The term ``trading account'' is intended to cover an account used by 
a firm to make profits from relatively short-term trading positions, as 
opposed to long-term, multi-year investments. The administration's 
proposed Volcker Rule focused on short-term trading, using the phrase 
``trading book'' to capture that concept. That phrase, which is 
currently used by some bank regulators was rejected, however, and the 
ultimate conference report language uses the term ``trading

[[Page 13160]]

account'' rather than ``trading book'' to ensure that all types of 
accounts used for proprietary trading are covered by the section.
  To ensure broad coverage of the prohibition on proprietary trading, 
paragraph (3) of subsection (h) defines ``trading account'' as any 
account used ``principally for the purpose of selling in the near term 
(or otherwise with the intent to resell in order to profit from short-
term price movements)'' and such other accounts as the regulators 
determine are properly covered by the provision to fulfill the purposes 
of the section. In designing this definition, we were aware of bank 
regulatory capital rules that distinguish between short-term trading 
and long-term investments, and our overall focus was to restrict high-
risk proprietary trading. For banking entity subsidiaries that do not 
maintain a distinction between a trading account and an investment 
account, all accounts should be presumed to be trading accounts and 
covered by the restriction.
  Linking the prohibition on proprietary trading to trading accounts 
permits banking entities to hold debt securities and other financial 
instruments in long-term investment portfolios. Such investments should 
be maintained with the appropriate capital charges and held for longer 
periods.
  The definition of proprietary trading in paragraph (4) covers a wide 
range of financial instruments, including securities, commodities, 
futures, options, derivatives, and any similar financial instruments. 
Pursuant to the rule of construction in subsection (g), paragraph (2), 
the definition should not generally include loans sold in the process 
of securitizing; however, it could include such loans if such loans 
become financial instruments traded to capture the change in their 
market value.
  Limiting the definition of proprietary trading to near-term holdings 
has the advantage of permitting banking entities to continue to deploy 
credit via long-term capital market debt instruments. However, it has 
the disadvantage of failing to prevent the problems created by longer-
term holdings in riskier financial instruments, for example, highly 
complex collateralized debt obligations and other opaque instruments 
that are not readily marketable. To address the risks to the banking 
system arising from those longer-term instruments and related trading, 
section 620 directs Federal banking regulators to sift through the 
assets, trading strategies, and other investments of banking entities 
to identify assets or activities that pose unacceptable risks to banks, 
even when held in longer-term accounts. Regulators are expected to 
apply the lessons of that analysis to tighten the range of investments 
and activities permissible for banking entities, whether they are at 
the insured depository institution or at an affiliate or subsidiary, 
and whether they are short or long term in nature.
  The new Bank Holding Company Act section 13 also restricts investing 
in or sponsoring hedge funds and private equity funds. Clearly, if a 
financial firm were able to structure its proprietary positions simply 
as an investment in a hedge fund or private equity fund, the 
prohibition on proprietary trading would be easily avoided, and the 
risks to the firm and its subsidiaries and affiliates would continue. A 
financial institution that sponsors or manages a hedge fund or private 
equity fund also incurs significant risk even when it does not invest 
in the fund it manages or sponsors. Although piercing the corporate 
veil between a fund and its sponsoring entity may be difficult, recent 
history demonstrates that a financial firm will often feel compelled by 
reputational demands and relationship preservation concerns to bail out 
clients in a failed fund that it managed or sponsored, rather than risk 
litigation or lost business. Knowledge of such concerns creates a moral 
hazard among clients, attracting investment into managed or sponsored 
funds on the assumption that the sponsoring bank or systemically 
significant firm will rescue them if markets turn south, as was done by 
a number of firms during the 2008 crisis. That is why setting limits on 
involvement in hedge funds and private equity funds is critical to 
protecting against risks arising from asset management services.
  Subsection (h), paragraph (2) sets forth a broad definition of hedge 
fund and private equity fund, not distinguishing between the two. The 
definition includes any company that would be an investment company 
under the Investment Company Act of 1940, but is excluded from such 
coverage by the provisions of sections 3(c)(1) or 3(c)(7). Although 
market practice in many cases distinguishes between hedge funds, which 
tend to be trading vehicles, and private equity funds, which tend to 
own entire companies, both types of funds can engage in high risk 
activities and it is exceedingly difficult to limit those risks by 
focusing on only one type of entity.
  Despite the broad prohibition on proprietary trading set forth in 
subsection (a), the legislation recognizes that there are a number of 
low-risk proprietary activities that do not pose unreasonable risks and 
explicitly permits those activities to occur. Those low-risk 
proprietary trading activities are identified in subsection (d), 
paragraph (1), subject to certain limitations set forth in paragraph 
(2), and additional capital charges required in paragraph (3).
  While paragraph (1) authorizes several permitted activities, it 
simultaneously grants regulators broad authority to set further 
restrictions on any of those activities and to supplement the 
additional capital charges provided for by paragraph (3).
  Subparagraph (d)(1)(A) authorizes the purchase or sale of government 
obligations, including government-sponsored enterprise, GSE, 
obligations, on the grounds that such products are used as low-risk, 
short-term liquidity positions and as low-risk collateral in a wide 
range of transactions, and so are appropriately retained in a trading 
account. Allowing trading in a broad range of GSE obligations is also 
meant to recognize a market reality that removing the use of these 
securities as liquidity and collateral positions would have significant 
market implications, including negative implications for the housing 
and farm credit markets. By authorizing trading in GSE obligations, the 
language is not meant to imply a view as to GSE operations or structure 
over the long-term, and permits regulators to add restrictions on this 
permitted activity as necessary to prevent high-risk proprietary 
trading activities under paragraph (2). When GSE reform occurs, we 
expect these provisions to be adjusted accordingly. Moreover, as is the 
case with all permitted activities under paragraph (1), regulators are 
expected to apply additional capital restrictions under paragraph (3) 
as necessary to account for the risks of the trading activities.
  Subparagraph (d)(1)(B) permits underwriting and market-making-related 
transactions that are technically trading for the account of the firm 
but, in fact, facilitate the provision of near-term client-oriented 
financial services. Market-making is a customer service whereby a firm 
assists its customers by providing two-sided markets for speedy 
acquisition or disposition of certain financial instruments. Done 
properly, it is not a speculative enterprise, and revenues for the firm 
should largely arise from the provision of credit provided, and not 
from the capital gain earned on the change in the price of instruments 
held in the firm's accounts. Academic literature sets out the 
distinctions between making markets for customers and holding 
speculative positions in assets, but in general, the two types of 
trading are distinguishable by the volume of trading, the size of the 
positions, the length of time that positions remains open, and the 
volatility of profits and losses, among other factors. Regulations 
implementing this permitted activity should focus on these types of 
factors to assist regulators in distinguishing between financial firms 
assisting their clients versus those engaged in proprietary trading. 
Vigorous and robust regulatory oversight of this issue will be 
essential to the prevent ``market-making'' from being used as a 
loophole in the ban on proprietary trading.

[[Page 13161]]

  The administration's draft language, the original section 619 
contemplated by the Senate Banking Committee, and amendment 4101 each 
included the term ``in facilitation of customer relations'' as a 
permitted activity. The term was removed in the final version of the 
Dodd-Frank Act out of concern that this phrase was too subjective, 
ambiguous, and susceptible to abuse. At the same time, we recognize 
that the term was previously included to permit certain legitimate 
client-oriented services, such pre-market-making accumulation of small 
positions that might not rise to the level of fully ``market-making'' 
in a security or financial instrument, but are intended to nonetheless 
meet expected near-term client liquidity needs. Accordingly, while 
previous versions of the legislation referenced ``market-making'', the 
final version references ``market-making-related'' to provide the 
regulators with limited additional flexibility to incorporate those 
types of transactions to meet client needs, without unduly warping the 
common understanding of market-making.
  We note, however, that ``market-making-related'' is not a term whose 
definition is without limits. It does not implicitly cover every time a 
firm buys an existing financial instrument with the intent to later 
sell it, nor does it cover situations in which a firm creates or 
underwrites a new security with the intent to market it to a client. 
Testimony by Goldman Sachs Chairman Lloyd Blankfein and other Goldman 
executives during a hearing before the Permanent Subcommittee on 
Investigations seemed to suggest that any time the firm created a new 
mortgage related security and began soliciting clients to buy it, the 
firm was ``making a market'' for the security. But one-sided marketing 
or selling securities is not equivalent to providing a two-sided market 
for clients buying and selling existing securities. The reality was 
that Goldman Sachs was creating new securities for sale to clients and 
building large speculative positions in high-risk instruments, 
including credit default swaps. Such speculative activities are the 
essence of proprietary trading and cannot be properly considered within 
the coverage of the terms ``market-making'' or ``market-making-
related.''
  The subparagraph also specifically limits such underwriting and 
market-making-related activities to ``reasonably expected near term 
demands of clients, customers, and counterparties.'' Essentially, the 
subparagraph creates two restrictions, one on the expected holding 
period and one on the intent of the holding. These two restrictions 
greatly limit the types of risks and returns for market-makers. 
Generally, the revenues for market-making by the covered firms should 
be made from the fees charged for providing a ready, two-sided market 
for financial instruments, and not from the changes in prices acquired 
and sold by the financial institution. The ``near term'' requirement 
connects to the provision in the definition of trading account whereby 
the account is defined as trading assets that are acquired 
``principally for the purpose of selling in the near term.'' The intent 
is to focus firms on genuinely making markets for clients, and not 
taking speculative positions with the firm's capital. Put simply, a 
firm will not satisfy this requirement by acquiring a position on the 
hope that the position will be able to be sold at some unknown future 
date for a trading profit.
  Subparagraph (d)(1)(C) permits a banking entity to engage in ``risk-
mitigating hedging activities in connection with and related to 
individual or aggregated positions, contracts, or other holdings of the 
banking entity that are designed to reduce the specific risks to the 
banking entity in connection with and related to such positions, 
contracts, or other holdings.'' This activity is permitted because its 
sole purpose is to lower risk.
  While this subparagraph is intended to permit banking entities to 
utilize their trading accounts to hedge, the phrase ``in connection 
with and related to individual or aggregated positions . . .'' was 
added between amendment 4101 and the final version in the conference 
report in order to ensure that the hedge applied to specific, 
identifiable assets, whether it be on an individual or aggregate basis. 
Moreover, hedges must be to reduce ``specific risks'' to the banking 
entity arising from these positions. This formulation is meant to focus 
banking entities on traditional hedges and prevent proprietary 
speculation under the guise of general ``hedging.'' For example, for a 
bank with a significant set of loans to a foreign country, a foreign 
exchange swap may be an appropriate hedging strategy. On the other 
hand, purchasing commodity futures to ``hedge'' inflation risks that 
may generally impact the banking entity may be nothing more than 
proprietary trading under another name. Distinguishing between true 
hedges and covert proprietary trades may be one of the more challenging 
areas for regulators, and will require clear identification by 
financial firms of the specific assets and risks being hedged, research 
and analysis of market best practices, and reasonable regulatory 
judgment calls. Vigorous and robust regulatory oversight of this issue 
will be essential to the prevent ``hedging'' from being used as a 
loophole in the ban on proprietary trading.
  Subparagraph (d)(1)(D) permits the acquisition of the securities and 
other affected financial instruments ``on behalf of customers.'' This 
permitted activity is intended to allow financial firms to use firm 
funds to purchase assets on behalf of their clients, rather than on 
behalf of themselves. This subparagraph is intended, in particular, to 
provide reassurance that trading in ``street name'' for customers or in 
trust for customers is permitted.
  In general, subparagraph (d)(1)(E) provides exceptions to the 
prohibition on investing in hedge funds or private equity funds, if 
such investments advance a ``public welfare'' purpose. It permits 
investments in small business investment companies, which are a form of 
regulated venture capital fund in which banks have a long history of 
successful participation. The subparagraph also permits investments 
``of the type'' permitted under the paragraph of the National Bank Act 
enabling banks to invest in a range of low-income community development 
and other projects. The subparagraph also specifically mentions tax 
credits for historical building rehabilitation administered by the 
National Park Service, but is flexible enough to permit the regulators 
to include other similar low-risk investments with a public welfare 
purpose.
  Subparagraph (d)(1)(F) is meant to accommodate the normal business of 
insurance at regulated insurance companies that are affiliated with 
banks. The Volcker Rule was never meant to affect the ordinary business 
of insurance: the collection and investment of premiums, which are then 
used to satisfy claims of the insured. These activities, while 
definitionally proprietary trading, are heavily regulated by State 
insurance regulators, and in most cases do not pose the same level of 
risk as other proprietary trading.
  However, to prevent abuse, firms seeking to rely on this insurance-
related exception must meet two essential qualifications. First, only 
trading for the general account of the insurance firm would qualify. 
Second, the trading must be subject to adequate State-level insurance 
regulation. Trading by insurance companies or their affiliates that is 
not subject to insurance company investment regulations will not 
qualify for protection here.
  Further, where State laws and regulations do not exist or otherwise 
fail to appropriately connect the insurance company investments to the 
actual business of insurance or are found to inadequately protect the 
firm, the subparagraph's conditions will not be met.
  Subparagraph (d)(1)(G) permits firms to organize and offer hedge 
funds or private equity funds as an asset management service to 
clients. It is important to remember that nothing in section 619 
otherwise prohibits a bank from serving as an investment adviser to an 
independent hedge fund or private equity fund. Yet, to serve in that 
capacity, a number of criteria must be met.
  First, the firm must be doing so pursuant to its provision of bona 
fide

[[Page 13162]]

trust, fiduciary, or investment advisory services to customers. Given 
the fiduciary obligations that come with such services, these 
requirements ensure that banking entities are properly engaged in 
responsible forms of asset management, which should tamp down on the 
risks taken by the relevant fund.
  Second, subparagraph (d)(1)(G) provides strong protections against a 
firm bailing out its funds. Clause (iv) prohibits banking entities, as 
provided under paragraph (1) and (2) of subsection (f), from entering 
into lending or similar transactions with related funds, and clause (v) 
prohibits banking entities from ``directly or indirectly, 
guarantee[ing], assum[ing], or otherwise insur[ing] the obligations or 
performance of the hedge fund or private equity fund.'' To prevent 
banking entities from engaging in backdoor bailouts of their invested 
funds, clause (v) extends to the hedge funds and private equity funds 
in which such subparagraph (G) hedge funds and private equity funds 
invest.
  Third, to prevent a banking entity from having an incentive to 
bailout its funds and also to limit conflicts of interest, clause (vii) 
of subparagraph (G) restricts directors and employees of a banking 
entity from being invested in hedge funds and private equity funds 
organized and offered by the banking entity, except for directors or 
employees ``directly engaged'' in offering investment advisory or other 
services to the hedge fund or private equity fund. Fund managers can 
have ``skin in the game'' for the hedge fund or private equity fund 
they run, but to prevent the bank from running its general employee 
compensation through the hedge fund or private equity fund, other 
management and employees may not.
  Fourth, by stating that a firm may not organize and offer a hedge 
fund or private equity fund with the firm's name on it, clause (vi) of 
subparagraph (G) further restores market discipline and supports the 
restriction on firms bailing out funds on the grounds of reputational 
risk. Similarly, clause (viii) ensures that investors recognize that 
the funds are subject to market discipline by requiring that funds 
provide prominent disclosure that any losses of a hedge fund or private 
equity fund are borne by investors and not by the firm, and the firm 
must also comply with any other restrictions to ensure that investors 
do not rely on the firm, including any of its affiliates or 
subsidiaries, for a bailout.
  Fifth, the firm or its affiliates cannot make or maintain an 
investment interest in the fund, except in compliance with the limited 
fund seeding and alignment of interest provisions provided in paragraph 
(4) of subsection (d). This paragraph allows a firm, for the limited 
purpose of maintaining an investment management business, to seed a new 
fund or make and maintain a ``de minimis'' co-investment in a hedge 
fund or private equity fund to align the interests of the fund managers 
and the clients, subject to several conditions. As a general rule, 
firms taking advantage of this provision should maintain only small 
seed funds, likely to be $5 to $10 million or less. Large funds or 
funds that are not effectively marketed to investors would be evasions 
of the restrictions of this section. Similarly, co-investments designed 
to align the firm with its clients must not be excessive, and should 
not allow for firms to evade the intent of the restrictions of this 
section.
  These ``de minimis'' investments are to be greatly disfavored, and 
subject to several significant restrictions. First, a firm may only 
have, in the aggregate, an immaterial amount of capital in such funds, 
but in no circumstance may such positions aggregate to more than 3 
percent of the firm's Tier 1 capital. Second, by one year after the 
date of establishment for any fund, the firm must have not more than a 
3 percent ownership interest. Third, investments in hedge funds and 
private equity funds shall be deducted on, at a minimum, a one-to-one 
basis from capital. As the leverage of a fund increases, the capital 
charges shall be increased to reflect the greater risk of loss. This is 
specifically intended to discourage these high-risk investments, and 
should be used to limit these investments to the size only necessary to 
facilitate asset management businesses for clients.
  Subparagraphs (H) and (I) recognize rules of international regulatory 
comity by permitting foreign banks, regulated and backed by foreign 
taxpayers, in the course of operating outside of the United States to 
engage in activities permitted under relevant foreign law. However, 
these subparagraphs are not intended to permit a U.S. banking entity to 
avoid the restrictions on proprietary trading simply by setting up an 
offshore subsidiary or reincorporating offshore, and regulators should 
enforce them accordingly. In addition, the subparagraphs seek to 
maintain a level playing field by prohibiting a foreign bank from 
improperly offering its hedge fund and private equity fund services to 
U.S. persons when such offering could not be made in the United States.
  Subparagraph (J) permits the regulators to add additional exceptions 
as necessary to ``promote and protect the safety and soundness of the 
banking entity and the financial stability of the United States.'' This 
general exception power is intended to ensure that some unforeseen, 
low-risk activity is not inadvertently swept in by the prohibition on 
proprietary trading. However, the subparagraph sets an extremely high 
bar: the activity must be necessary to promote and protect the safety 
and soundness of the banking entity and the financial stability of the 
United States, and not simply pose a competitive disadvantage or a 
threat to firms' profitability.
  Paragraph (2) of section (d) adds explicit statutory limits to the 
permitted activities under paragraph (1). Specifically, it prevents an 
activity from qualifying as a permitted activity if it would ``involve 
or result in a material conflict of interest,'' ``result directly or 
indirectly in a material exposure . . . to high-risk assets or high-
risk trading strategies'' or otherwise pose a threat to the safety and 
soundness of the firm or the financial stability of the United States. 
Regulators are directed to define the key terms in the paragraph and 
implement the restrictions as part of the rulemaking process. 
Regulators should pay particular attention to the hedge funds and 
private equity funds organized and offered under subparagraph (G) to 
ensure that such activities have sufficient distance from other parts 
of the firm, especially those with windows into the trading flow of 
other clients. Hedging activities should also be particularly 
scrutinized to ensure that information about client trading is not 
improperly utilized.
  The limitation on proprietary trading activities that ``involve or 
result in a material conflict of interest'' is a companion to the 
conflicts of interest prohibition in section 621, but applies to all 
types of activities rather than just asset-backed securitizations.
  With respect to the definition of high-risk assets and high-risk 
trading strategies, regulators should pay close attention to the 
characteristics of assets and trading strategies that have contributed 
to substantial financial loss, bank failures, bankruptcies, or the 
collapse of financial firms or financial markets in the past, including 
but not limited to the crisis of 2008 and the financial crisis of 1998. 
In assessing high-risk assets and high-risk trading strategies, 
particular attention should be paid to the transparency of the markets, 
the availability of consistent pricing information, the depth of the 
markets, and the risk characteristics of the assets and strategies 
themselves, including any embedded leverage. Further, these 
characteristics should be evaluated in times of extreme market stress, 
such as those experienced recently. With respect to trading strategies, 
attention should be paid to the role that certain types of trading 
strategies play in times of relative market calm, as well as times of 
extreme market stress. While investment advisors may freely deploy 
high-risk strategies for their clients, attention should be paid to 
ensure that firms do not utilize them for their own proprietary 
activities. Barring high risk strategies may be particularly critical 
when policing

[[Page 13163]]

market-making-related and hedging activities, as well as trading 
otherwise permitted under subparagraph (d)(1)(A). In this context, 
however, it is irrelevant whether or not a firm provides market 
liquidity: high-risk assets and high-risk trading strategies are never 
permitted.
  Subsection (d), paragraph (3) directs the regulators to set 
appropriate additional capital charges and quantitative limits for 
permitted activities. These restrictions apply to both banking entities 
and nonbank financial companies supervised by the Board. It is left to 
regulators to determine if those restrictions should apply equally to 
both, or whether there may appropriately be a distinction between 
banking entities and non-bank financial companies supervised by the 
Board. The paragraph also mandates diversification requirements where 
appropriate, for example, to ensure that banking entities do not deploy 
their entire permitted amount of de minimis investments into a small 
number of hedge funds or private equity funds, or that they dangerously 
over-concentrate in specific products or types of financial products.
  Subsection (e) provides vigorous anti-evasion authority, including 
record-keeping requirements. This authority is designed to allow 
regulators to appropriately assess the trading of firms, and 
aggressively enforce the text and intent of section 619.
  The restrictions on proprietary trading and relationships with 
private funds seek to break the internal connection between a bank's 
balance sheet and taking risk in the markets, with a view towards 
reestablishing market discipline and refocusing the bank on its credit 
extension function and client services. In the recent financial crisis, 
when funds advised by banks suffered significant losses, those off-
balance sheet funds came back onto the banks' balance sheets. At times, 
the banks bailed out the funds because the investors in the funds had 
other important business with the banks. In some cases, the investors 
were also key personnel at the banks. Regardless of the motivations, in 
far too many cases, the banks that bailed out their funds ultimately 
relied on taxpayers to bail them out. It is precisely for this reason 
that the permitted activities under subparagraph (d)(1)(G) are so 
narrowly defined.
  Indeed, a large part of protecting firms from bailing out their 
affiliated funds is by limiting the lending, asset purchases and sales, 
derivatives trading, and other relationships that a banking entity or 
nonbank financial company supervised by the Board may maintain with the 
hedge funds and private equity funds it advises. The relationships that 
a banking entity maintains with and services it furnishes to its 
advised funds can provide reasons why and the means through which a 
firm will bail out an advised fund, be it through a direct loan, an 
asset acquisition, or through writing a derivative. Further, providing 
advisory services to a hedge fund or private equity fund creates a 
conflict of interest and risk because when a banking entity is itself 
determining the investment strategy of a fund, it no longer can make a 
fully independent credit evaluation of the hedge fund or private equity 
fund borrower. These bailout protections will significantly benefit 
independent hedge funds and private equity funds, and also improve U.S. 
financial stability.
  Accordingly, subsection (f), paragraph (1) sets forth the broad 
prohibition on a banking entity entering into any ``covered 
transactions'' as such term is defined in the Federal Reserve Act's 
section 23A, as if such banking entity were a member bank and the fund 
were an affiliate thereof. ``Covered transactions'' under section 23A 
includes loans, asset purchases, and, following the Dodd-Frank bill 
adoption, derivatives between the member bank and the affiliate. In 
general, section 23A sets limits on the extension of credit between 
such entities, but paragraph (1) of subsection (f) prohibits all such 
transactions. It also prohibits transactions with funds that are 
controlled by the advised or sponsored fund. In short, if a banking 
entity organizes and offers a hedge fund or private equity fund or 
serves as investment advisor, manager, or sponsor of a fund, the fund 
must seek credit, including from asset purchases and derivatives, from 
an independent third party.
  Subsection (f), paragraph (2) applies section 23B of the Federal 
Reserve Act to a banking entity and its advised or sponsored hedge fund 
or private equity fund. This provides, inter alia, that transactions 
between a banking entity and its fund be conducted at arms length. The 
fact that section 23B also includes the provision of covered 
transactions under section 23A as part of its arms-length requirement 
should not be interpreted to undermine the strict prohibition on such 
transactions in paragraph (1).
  Subsection (f), paragraph (3) permits the Board to allow a very 
limited exception to paragraph (1) for the provision of certain limited 
services under the rubric of ``prime brokerage'' between the banking 
entity and a third-party-advised fund in which the fund managed, 
sponsored, or advised by the banking entity has taken an ownership 
interest. Essentially, it was argued that a banking entity should not 
be prohibited, under proper restrictions, from providing limited 
services to unaffiliated funds, but in which its own advised fund may 
invest. Accordingly, paragraph (3) is intended to only cover third-
party funds, and should not be used as a means of evading the general 
prohibition provided in paragraph (1). Put simply, a firm may not 
create tiered structures and rely upon paragraph (3) to provide these 
types of services to funds for which it serves as investment advisor.
  Further, in recognition of the risks that are created by allowing for 
these services to unaffiliated funds, several additional criteria must 
also be met for the banking entity to take advantage of this exception. 
Most notably, on top of the flat prohibitions on bailouts, the statute 
requires the chief executive officer of firms taking advantage of this 
paragraph to also certify that these services are not used directly or 
indirectly to bail out a fund advised by the firm.
  Subsection (f), paragraph (4) requires the regulatory agencies to 
apply additional capital charges and other restrictions to systemically 
significant nonbank financial institutions to account for the risks and 
conflicts of interest that are addressed by the prohibitions for 
banking entities. Such capital charges and other restrictions should be 
sufficiently rigorous to account for the significant amount of risks 
associated with these activities.
  To give markets and firms an opportunity to adjust, implementation of 
section 620 will proceed over a period of several years. First, 
pursuant to subsection (b), paragraph (1), the Financial Stability 
Oversight Council will conduct a study to examine the most effective 
means of implementing the rule. Then, under paragraph (b)(2), the 
Federal banking agencies, the Securities and Exchange Commission, and 
the Commodity Futures Trading Commission shall each engage in 
rulemakings for their regulated entities, with the rulemaking 
coordinated for consistency through the Financial Stability Oversight 
Council. In coordinating the rulemaking, the Council should strive to 
avoid a ``lowest common denominator'' framework, and instead apply the 
best, most rigorous practice from each regulatory agency.
  Pursuant to subsection (c), paragraph (1), most provisions of section 
619 become effective 12 months after the issuance of final rules 
pursuant to subsection (b), but in no case later than 2 years after the 
enactment of the Dodd-Frank Act. Paragraph (c)(2) provides a 2-year 
period following effective date of the provision during which entities 
must bring their activities into conformity with the law, which may be 
extended for up to 3 more years. Special illiquid funds may, if 
necessary, receive one 5-year extension and may also continue to honor 
certain contractual commitments during the transition period. The 
purpose of this extended wind-down period is to minimize market 
disruption while still steadily moving firms away from the risks of the 
restricted activities.
  The definition of ``illiquid funds'' set forth in subsection (h) 
paragraph (7) is meant to cover, in general, very illiquid private 
equity funds that have

[[Page 13164]]

deployed capital to illiquid assets such as portfolio companies and 
real estate with a projected investment holding period of several 
years. The Board, in consultation with the SEC, should therefore adopt 
rules to define the contours of an illiquid fund as appropriate to 
capture the intent of the provision. To facilitate certainty in the 
market with respect to divestiture, the Board is to conduct a special 
expedited rulemaking regarding these conformance and wind-down periods. 
The Board is also to set capital rules and any additional restrictions 
to protect the banking entities and the U.S. financial system during 
this wind-down period.
  We noted above that the purpose of section 620 is to review the long-
term investments and other activities of banks. The concerns reflected 
in this section arise out of losses that have appeared in the long-term 
investment portfolios in traditional depository institutions.
  Over time, various banking regulators have displayed expansive views 
and conflicting judgments about permissible investments for banking 
entities. Some of these activities, including particular trading 
strategies and investment assets, pose significant risks. While section 
619 provides numerous restrictions to proprietary trading and 
relationships to hedge funds and private equity funds, it does not seek 
to significantly alter the traditional business of banking.
  Section 620 is an attempt to reevaluate banking assets and strategies 
and see what types of restrictions are most appropriate. The Federal 
banking agencies should closely review the risks contained in the types 
of assets retained in the investment portfolio of depository 
institutions, as well as risks in affiliates' activities such as 
merchant banking. The review should dovetail with the determination of 
what constitutes ``high-risk assets'' and ``high risk trading 
strategies'' under paragraph (d)(2).
  At this point, I yield to Senator Levin to discuss an issue that is 
of particular interest to him involving section 621's conflict of 
interest provisions.
  Mr. LEVIN. I thank my colleague for the detailed explanation he has 
provided of sections 619 and 620, and fully concur in it. I would like 
to add our joint explanation of section 621, which addresses the 
blatant conflicts of interest in the underwriting of asset-backed 
securities highlighted in a hearing with Goldman Sachs before the 
Permanent Subcommittee on Investigations, which I chair.
  The intent of section 621 is to prohibit underwriters, sponsors, and 
others who assemble asset-backed securities, from packaging and selling 
those securities and profiting from the securities' failures. This 
practice has been likened to selling someone a car with no brakes and 
then taking out a life insurance policy on the purchaser. In the asset-
backed securities context, the sponsors and underwriters of the asset-
backed securities are the parties who select and understand the 
underlying assets, and who are best positioned to design a security to 
succeed or fail. They, like the mechanic servicing a car, would know if 
the vehicle has been designed to fail. And so they must be prevented 
from securing handsome rewards for designing and selling malfunctioning 
vehicles that undermine the asset-backed securities markets. It is for 
that reason that we prohibit those entities from engaging in 
transactions that would involve or result in material conflicts of 
interest with the purchasers of their products.
  Section 621 is not intended to limit the ability of an underwriter to 
support the value of a security in the aftermarket by providing 
liquidity and a ready two-sided market for it. Nor does it restrict a 
firm from creating a synthetic asset-backed security, which inherently 
contains both long and short positions with respect to securities it 
previously created, so long as the firm does not take the short 
position. But a firm that underwrites an asset-backed security would 
run afoul of the provision if it also takes the short position in a 
synthetic asset-backed security that references the same assets it 
created. In such an instance, even a disclosure to the purchaser of the 
underlying asset-backed security that the underwriter has or might in 
the future bet against the security will not cure the material conflict 
of interest.
  We believe that the Securities and Exchange Commission has sufficient 
authority to define the contours of the rule in such a way as to remove 
the vast majority of conflicts of interest from these transactions, 
while also protecting the healthy functioning of our capital markets.
  In conclusion, we would like to acknowledge all our supporters, co-
sponsors, and advisers who assisted us greatly in bringing this 
legislation to fruition. From the time President Obama announced his 
support for the Volcker Rule, a diverse and collaborative effort has 
emerged, uniting community bankers to old school financiers to 
reformers. Senator Merkley and I further extend special thanks to the 
original cosponsors of the PROP Trading Act, Senators Ted Kaufman, 
Sherrod Brown, and Jeanne Shaheen, who have been with us since the 
beginning.
  Senator Jack Reed and his staff did yeoman's work in advancing this 
cause. We further tip our hat to our tireless and vocal colleague, 
Senator Byron Dorgan, who opposed the repeal of Glass-Steagall and has 
been speaking about the risks from proprietary trading for a number of 
years. Above all, we pay tribute to the tremendous labors of Chairman 
Chris Dodd and his entire team and staff on the Senate Banking 
Committee, as well as the support of Chairman Barney Frank and 
Representative Paul Kanjorski. We extend our deep gratitude to our 
staffs, including the entire team and staff at the Permanent 
Subcommittee on Investigations, for their outstanding work. And last 
but not least, we highlight the visionary leadership of Paul Volcker 
and his staff. Without the support of all of them and many others, the 
Merkley-Levin language would not have been included in the Conference 
Report.
  We believe this provision will stand the test of time. We hope that 
our regulators have learned with Congress that tearing down regulatory 
walls without erecting new ones undermines our financial stability and 
threatens economic growth. We have legislated to the best of our 
ability. It is now up to our regulators to fully and faithfully 
implement these strong provisions.
  I yield the floor to Senator Merkley.
  Mr. MERKLEY. I thank my colleague for his remarks and concur in all 
respects.
  Mr. DODD. Mr. President, I said so yesterday, and I will say it 
again: I thank Senator Merkley. I guess there are four new Members of 
the Senate serving on the Banking Committee. Senator Merkley, Senator 
Warner, Senator Tester, and Senator Bennet are all new Members of the 
Senate from their respective States of Oregon, Virginia, Montana, and 
Colorado. To be thrown into what has been the largest undertaking of 
the Banking Committee, certainly in my three decades here--and many 
have argued going back almost 100 years--was certainly an awful lot to 
ask.
  I have already pointed out the contribution Senator Warner has made 
to this bill. But I must say as well that Senator Bennet of Colorado 
has been invaluable in his contributions. I just mentioned Senator 
Tester a moment ago for his contribution on talking about rural America 
and the importance of those issues. And Senator Merkley, as a member of 
the committee, on matters we included here dealing particularly with 
the mortgage reforms, the underwriting standards, the protections 
people have to go through, and credit cards as well--we passed the 
credit card bill--again, it was Senator Jeff Merkley of Oregon who 
played a critical role in that whole debate not to mention, of course, 
working with Carl Levin, one of the more senior Members here, having 
served for many years in the Senate. But the Merkley-Levin, Levin-
Merkley provisions in this bill have added substantial contributions to 
this effort. So I thank him for his contribution.
  I see my colleague from North Dakota is here. I suggest the absence 
of a

[[Page 13165]]

 quorum and ask unanimous consent that the time be equally divided 
among both sides.
  The PRESIDING OFFICER. Without objection, it is so ordered. The clerk 
will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. DODD. I ask unanimous consent that the order for the quorum call 
be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. DODD. Mr. President, we listened to Senator Conrad, the chairman 
of the Budget Committee, address the budget point of order. I urge my 
colleagues to waive the point of order.
  We came up with an alternative offset in the conference committee, 
much at the insistence--and I thanked him for that--of Senator Brown of 
Massachusetts, looking for a better offset than the ones which were 
originally in the conference report. I know my colleague from Maine as 
well had reservations about what we originally included.
  The offset here ends TARP, which I presume most people would welcome 
with open arms, saving us $11 billion by terminating it early, as well 
as provides for additional assessments to meet the obligations of the 
FDIC and the insurance fund, which the Chairperson of the Federal 
Deposit Insurance Corporation, Sheila Bair, supported. Both of those 
items provide the necessary offsets to the cost of this bill.
  The long-term deficit point of order is caused by the orderly 
liquidation authority for systemically significant financial 
institutions.
  Let me note that this critically important aspect of the legislation 
was developed in very close cooperation with Senator Shelby in the 
Shelby-Dodd amendment. It also reflects the bipartisan cooperation of 
Senators Corker and Warner. The Shelby-Dodd amendment passed this body 
overwhelmingly with over 90 votes.
  Even though the liquidation authority is the source of long-term 
budget costs, it is still 100 percent paid for. The Shelby-Dodd 
amendment and the Boxer amendment made sure that this would be the 
case. Let me repeat, the liquidation authority, which is the dominant 
source of the budget cost in the bill, is 100 percent paid for over 
time.
  The only reason that the liquidation authority scores at all is 
because of timing. The FDIC may initially have to borrow funds from the 
Treasury in order to wind down the failed company and put it out of 
business. Because it will take time to liquidate a large, 
interconnected financial company, there is a lag between when the funds 
are borrowed and when they are repaid by the sale of the failed 
companies' assets, its creditors and assessments on the industry if 
necessary.
  One more important point on budget scoring and the liquidation 
authority. CBO cannot factor in the costs to our nation of a failure to 
address the possibility of future bailouts. We have lived through that 
nightmare and it has cost our country dearly.
  Now I would like to discuss the way in which we address the budget 
consequences of the legislation. In particular, I would like to respond 
to some comments that have been made about the provisions increasing 
the long-term minimum target for the FDIC and thereby strengthening the 
Deposit Insurance Fund, a goal that no one can credibly argue with in 
light of the recent crisis.
  In fact, this provision is supported by FDIC Chairman Sheila Bair, 
and she has sent us a letter expressing her support. I ask unanimous 
consent that the letter be printed in the Record at the conclusion of 
my remarks.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (See exhibit 1.)
  Mr. DODD. Some of my colleagues on the other side of the aisle have 
claimed that the use of the FDIC in this way is unprecedented and 
questioned how this could count as budget savings or offsets and at the 
same time preserve the funds for bank failures.
  Let us clear up the misinformation. First, no FDIC funds are being 
spent on, or transferred to, other programs. Premiums paid by banks 
remain, as they have for over 75 years, in the FDIC fund solely to 
protect insured deposits.
  And counting FDIC premiums as budget savings in legislation 
absolutely does have precedent. We have to look no further than 
relatively recent actions of Republican Congresses to find them.
  Budget reconciliation legislation enacted in February 2006 and 
sponsored by my colleague from New Hampshire, who was then the Chairman 
of the Budget Committee, included FDIC reforms authored by my colleague 
from Alabama, who was then Chairman of the Banking Committee. Those 
provisions resulted in higher FDIC premiums, which CBO said yielded 
almost $2 billion in budget savings over 10 years.
  So, my colleagues from New Hampshire and Alabama in fact relied on 
reforms to the Deposit Insurance Fund to obtain savings that CBO 
favorably scored.
  And 10 years earlier, Congress attached to an omnibus spending bill 
enacted in September 1996 a provision calling for a special premium on 
thrifts to capitalize the FDIC's thrift insurance fund.
  The appropriators in that earlier Republican Congress justified 
higher discretionary spending based partly on the budget savings scored 
by CBO for the FDIC assessment.
  I would also like to respond to some comments that have been made 
about the treatment of TARP in this legislation.
  We end TARP in the conference report. With the comprehensive 
financial reform put in place under this bill, we think it is the right 
time to bring TARP to a close, ending it earlier than had been planned. 
I think that is something everyone should be happy about. And ending 
TARP saves the government money. That is not just my conclusion. It is 
the conclusion of the Congressional Budget Office, $11 billion in 
savings.
  It is true that the original TARP legislation passed as an emergency, 
its costs were declared an emergency when it passed, so rescinding 
those funds or ending the program now is ending spending that is 
considered ``emergency'' spending.
  But the savings are no less real because of that. Interestingly, my 
Republican colleague who has raised the point of order offered an 
amendment in conference that would have rescinded stimulus funding to 
pay for this bill. Why is that relevant? Because the stimulus money was 
also designated as an emergency, so it would have received the same 
accounting treatment here in the Senate as TARP. Both were emergencies.
  Both ending TARP early and rescinding stimulus funding would reduce 
the deficit, but the burden of cuts in stimulus funding would fall 
disproportionately on families and small businesses who have been 
victims of the economic fallout from the Wall Street crisis. Cutting 
such spending would be exactly the wrong thing to do as we try to get 
the economy back on track and people back to work.
  The fact is that overall this bill does not do damage to our 
budgetary outlook.
  It does make vital changes to make our financial system stronger and 
more stable and should be passed as soon as possible.
  So I urge my colleagues to support a motion to waive the long-term 
deficit point of order.

                               Exhibit 1

                                                   Federal Deposit


                                        Insurance Corporation,

                                    Washington, DC, June 29, 2010.
     Hon. Chris Dodd,
     Chairman, Committee on Banking, U.S. Senate, Washington, DC.
     Hon. Richard Shelby,
     Ranking Minority Member, Committee on Banking, U.S. Senate, 
         Washington, DC.
     Hon. Barney Frank,
     Chairman, Committee on Financial Services, House of 
         Representatives, Washington, DC.
     Hon. Spencer Bachus,
     Ranking Minority Member, Committee on Financial Services, 
         House of Representatives, Washington, DC.
       Dear Chairmen Dodd and Frank and Ranking Members Shelby and 
     Bachus: Thank you for your interest in our views regarding 
     increasing the Deposit Insurance Fund (DIF) ratio to 1.35.

[[Page 13166]]

       Federal deposit insurance promotes public confidence in our 
     nation's banking system by providing a safe place for 
     consumers' funds. Deposit insurance has provided much needed 
     stability throughout this crisis. Moreover, insured deposits 
     provide banks with a stable and cost-effective source of 
     funds for lending in their communities. Importantly, the DIF 
     is funded by the insured banking industry.
       A key measure of the strength of the insurance fund is the 
     reserve ratio, which is the amount in the DIF as a percentage 
     of the industry's estimated insured deposits. Current law 
     requires us to maintain a reserve ratio of at least 1.15 
     percent. One of the lessons learned from the current crisis 
     is that a minimum reserve ratio of 1.15 is insufficient to 
     avoid the need for pro-cyclical assessments in times of 
     stress. One of my first priorities when I assumed the 
     Chairmanship of the FDIC in June of 2006 was to begin 
     building our reserves. Regrettably, there was insufficient 
     time before the crisis hit. Indeed, we started this crisis 
     with a DIF reserve ratio of 1.22 percent (as of December 31, 
     2007). Beginning in mid-2008, as bank failures increased and 
     the insurance fund incurred losses, the Fund balance and 
     reserve ratio dropped precipitously. The reserve ratio became 
     negative in the third quarter of 2009 and hit a low of 
     negative 0.39 percent as of December 31, 2009. To date, we 
     have collected more than $65 billion in assessments, and are 
     projected to collect another $80 billion by 2016 to restore 
     the fund.
       Given this experience, we believe it is clear that as the 
     economy strengthens and the banking system heals, the reserve 
     ratio needs to be increased. In fact, our Board has acted 
     through regulation to target the reserve ratio at 1.25 
     percent, and a further increase to 1.35 percent is consistent 
     with our view that the Fund should build up in good economic 
     times and be allowed to fall in poor economic times, while 
     maintaining relatively steady premiums throughout the 
     economic cycle, thereby reducing the procyclicality of the 
     assessment system.
       Please let me know if you have any questions or would like 
     to discuss further.
           Sincerely,
                                                   Sheila C. Bair.

  Mr. DODD. I again urge my colleagues to vote to waive the budget 
point of order, and, of course, I urge them as well to support the 
legislation when that vote occurs.


                     intent behind sections 691-621

  Mr. MERKLEY. Mr. President, I rise to engage my colleagues, Senators 
Dodd and Levin, in a colloquy regarding some key aspects of our 
legislative intent behind sections 619 through 621, the Merkley-Levin 
rule on proprietary trading and conflicts of interest as included in 
the conference report.
  First, I would like to clarify several issues surrounding the ``de 
minimis'' investment provisions in subsection (d)(4). These provisions 
complement subsection (d)(1)(G), which permits firms to offer hedge 
funds and private equity funds to clients. ``De minimis'' investments 
under paragraph (4) are intended to facilitate these offerings 
principally by allowing a firm to start new funds and to maintain 
coinvestments in funds, which help the firm align its interests with 
those of its clients. During the initial start-up period, during which 
time firms may maintain 100 percent ownership, the fund should be 
relatively small, but sufficient to effectively implement the 
investment strategy. After the start up period, a firm may keep an 
ongoing ``alignment of interest'' coinvestment at 3 percent of a fund. 
Our intent is not to allow for large, revolving ``seed'' funds to evade 
the strong restrictions on proprietary trading of this section, and 
regulators will need to be vigilant against such evasion. The aggregate 
of all seed and coinvestments should be immaterial to the banking 
entity, and never exceed 3 percent of a firm's Tier 1 capital.
  Second, I would like to clarify the intent of subsection (f)'s 
provisions to prohibit banking entities from bailing out funds they 
manage, sponsor, or advise, as well as funds in which those funds 
invest. The ``permitted services'' provisions outlined in subsection 
(f) are intended to permit banks to maintain certain limited ``prime 
brokerage'' service relationships with unaffiliated funds in which a 
fund-of-funds that they manage invests, but are not intended to permit 
fund-of-fund structures to be used to weaken or undermine the 
prohibition on bailouts. Given the risk that a banking entity may want 
to bail out a failing fund directly or its investors, the ``permitted 
services'' exception must be implemented in a narrow, well-defined, and 
arms-length manner and regulators are not empowered to create loopholes 
allowing high-risk activities like leveraged securities lending or 
repurchase agreements. While we implement a number of legal 
restrictions designed to ensure that prime brokerage activities are not 
used to bail out a fund, we expect the regulators will nevertheless 
need to be vigilant.
  Before I yield the floor to Senator Levin to discuss several 
additional items, let me say a word of thanks to my good friend, 
Chairman Dodd, for taking the time to join me in clarifying these 
provisions. I also honor him for his extraordinary leadership on the 
entire financial reform package. As a fellow member of the Banking 
Committee, it has been a privilege to work with him on the entire bill, 
and not just these critical provisions. I also would like to recognize 
Senator Levin, whose determined efforts with his Permanent Subcommittee 
on Investigations helped highlight the causes of the recent crisis, as 
well as the need for reform. It has been a privilege working with him 
on this provision.
  Mr. LEVIN. I thank the Senator, and I concur with his detailed 
explanations. His tireless efforts in putting these commonsense 
restrictions into law will help protect American families from reckless 
risk-taking that endangers our financial system and our economy.
  The conflicts of interest provision under section 621 arises directly 
from the hearings and findings of our Permanent Subcommittee on 
Investigations, which dramatically showed how some firms were creating 
financial products, selling those products to their customers, and 
betting against those same products. This practice has been likened to 
selling someone a car with no brakes and then taking out a life 
insurance policy on the purchaser. In the asset-backed securities 
context, the sponsors and underwriters of the asset-backed securities 
are the parties who select and understand the underlying assets, and 
who are best positioned to design a security to succeed or fail. They, 
like the mechanic servicing a car, would know if the vehicle has been 
designed to fail. And so they must be prevented from securing handsome 
rewards for designing and selling malfunctioning vehicles that 
undermine the asset-backed securities markets. It is for that reason 
that we prohibit those entities from engaging in transactions that 
would involve or result in material conflicts of interest with the 
purchasers of their products.
  First, I would like to address certain areas which we exclude from 
coverage. While a strong prohibition on material conflicts of interest 
is central to section 621, we recognize that underwriters are often 
asked to support issuances of asset-backed securities in the 
aftermarket by providing liquidity to the initial purchasers, which may 
mean buying and selling the securities for some time. That activity is 
consistent with the goal of supporting the offering, is not likely to 
pose a material conflict, and accordingly we are comfortable excluding 
it from the general prohibition. Similarly, market conditions change 
over time and may lead an underwriter to wish to sell the securities it 
holds. That is also not likely to pose a conflict. But regulators must 
act diligently to ensure that an underwriter is not making bets against 
the very financial products that it assembled and sold.
  Second, I would like to address the role of disclosures in relations 
to conflicts of interest. In our view, disclosures alone may not cure 
these types of conflicts in all cases. Indeed, while a meaningful 
disclosure may alleviate the appearance of a material conflict of 
interest in some circumstances, in others, such as if the disclosures 
cannot be made to the appropriate party or because the disclosure is 
not sufficiently meaningful, disclosures are likely insufficient. Our 
intent is to provide the regulators with the authority and strong 
directive to stop the egregious practices, and not to allow for 
regulators to enable them to continue behind the fig leaf of vague, 
technically worded, fine print disclosures.
  These provisions shall be interpreted strictly, and regulators are 
directed to use their authority to act decisively to protect our 
critical financial infrastructure from the risks and conflicts

[[Page 13167]]

inherent in allowing banking entities and other large financial firms 
to engage in high risk proprietary trading and investing in hedge funds 
and private equity funds.
  Mr. President, I would like to thank Chairman Dodd for his 
extraordinary dedication in shepherding this massive financial 
regulatory reform package through the Senate and the conference 
committee. This has been a long process, and he and his staff have been 
very able and supportive partners in this effort.
  Mr. DODD. I thank the Senator, and I strongly concur with the 
intentions and interpretations set forth by the principal authors of 
these provisions, Senators Merkley and Levin, as reflecting the 
legislative intent of the conference committee. I thank Senators 
Merkley and Levin for their leadership, which was so essential in 
achieving the conference report provisions governing proprietary 
trading and prohibiting conflicts of interest.


                     Assessing Individual Entities

  Mr. KOHL. Mr. President, I thank the Chairman for his continued work 
to ensure that appropriate resources are available to protect the 
economy from a future failure of a systemically risky financial 
institution and to help pay back taxpayers for the recent failures we 
experienced.
  With regard to assessments under the orderly liquidation authority of 
the bill, the bill requires that a risk-based matrix of factors be 
established by the FDIC, taking into account the recommendations of the 
Financial Stability Oversight Council, to be used in connection with 
assessing any individual entity. One of the factors listed in the 
bill's risk matrix provision would take into account the activities of 
financial entities and their affiliates. Is it the intent of that 
language that a consideration of such factors should specifically 
include the impact of potential assessments on the ability of an 
institution that is a tax-exempt, not-for-profit organization to carry 
out their legally required charitable and educational activities?
  As the Senator knows, many Members of the Senate--like me--feel 
strongly that we must ensure that our constituents and communities 
continue to have access to these vital resources, and any potential 
assessment on tax-exempt groups which are charitable and/or educational 
by mission could severely hamper these groups' ability to fulfill their 
obligations to carry out their legally required activities.
  Mr. DODD. Yes, that is correct. The language is not intended to 
reduce such charitable and educational activities that are legally 
required for tax-exempt, not-for-profit organizations that are so 
important to communities across the country. I thank the Senator for 
his continued help on these efforts.


                      section 603 trust companies

  Ms. COLLINS. Mr. President, I ask the chairman of the Senate Banking 
Committee, my colleague from Connecticut, Senator Dodd, to clarify the 
types of trust companies that fall within the scope of section 603(a), 
a provision that prohibits the Federal Deposit Insurance Corporation 
from approving an application for deposit insurance for certain 
companies, including certain trust companies, until 3 years after the 
date of enactment of this act.
  Mr. DODD. I would be glad to clarify the nature of trust companies 
subject to the moratorium under section 603(a). The moratorium applies 
to an institution that is directly or indirectly owned or controlled by 
a commercial firm that functions solely in a trust or fiduciary 
capacity and is exempt from the definition of a bank in the Bank 
Holding Company Act. It does not apply to a nondepository trust company 
that does not have FDIC insurance and that does not offer demand 
deposit accounts or other deposits that may be withdrawn by check or 
similar means for payment to third parties.
  Ms. COLLINS. I thank my colleague for his clarification.


                      Nonbank Financial Companies

  Ms. COLLINS. Mr. President, as we move to final passage of this 
historic legislation, I would like to thank Senator Dodd again for his 
leadership and strong support for my amendment to ensure that all 
insured depository institutions and depository institution holding 
companies regardless of size, as well as nonbank financial companies 
supervised by the Federal Reserve, meet statutory minimum capital 
standards and thus have adequate capital throughout the economic cycle. 
Those standards required under section 171 serve as the starting point 
for the development of more stringent standards as required under 
section 165 of the bill.
  I did, however, have questions about the designation of certain 
nonbank financial companies under section 113 for Federal Reserve 
supervision and the significance of such a designation in light of the 
minimum capital standards established by section 171. While I can 
envision circumstances where a company engaged in the business of 
insurance could be designated under section 113, I would not ordinarily 
expect insurance companies engaged in traditional insurance company 
activities to be designated by the council based on those activities 
alone. Rather, in considering a designation, I would expect the council 
to specifically take into account, among other risk factors, how the 
nature of insurance differs from that of other financial products, 
including how traditional insurance products differ from various off-
balance-sheet and derivative contract exposures and how that different 
nature is reflected in the structure of traditional insurance 
companies. I would also expect the council to consider whether the 
designation of an insurance company is appropriate given the existence 
of State-based guaranty funds to pay claims and protect policyholders. 
Am I correct in that understanding?
  Mr. DODD. The Senator is correct. The council must consider a number 
of factors, including, for example, the extent of leverage, the extent 
and nature of off-balance-sheet exposures, and the nature, scope, size, 
scale, concentration, interconnectedness, and mix of the company's 
activities. Where a company is engaged only in traditional insurance 
activities, the council should also take into account the matters you 
raised.
  Ms. COLLINS. Would the Senator agree that the council should not base 
designations simply on the size of the financial companies?
  Mr. DODD. Yes. The size of a financial company should not by itself 
be determinative.
  Ms. COLLINS. As the Senator knows, insurance companies are already 
heavily regulated by State regulators who impose their own, very 
different regulatory and capital requirements. The fact that those 
capital requirements are not the same as those imposed by section 171 
should not increase the likelihood that the council will designate an 
insurer. Does the Senator agree?
  Mr. DODD. Yes, I do not believe that the council should decide to 
designate an insurer simply based on whether the insurer would meet 
bank capital requirements.


                          Preemption Standard

  Mr. CARPER. Mr. President, I am very pleased to see that the 
conference committee on the Dodd-Frank Wall Street Reform and Consumer 
Protection Act retained my amendment regarding the preemption standard 
for State consumer financial laws with only minor modifications. I very 
much appreciate the effort of Chairman Dodd in fighting to retain the 
amendment in conference.
  Mr. DODD. I thank the Senator. As the Senator knows, his amendment 
received strong bipartisan support on the Senate floor and passed by a 
vote of 80 to 18. It was therefore a Senate priority to retain his 
provision in our negotiations with the House of Representatives.
  Mr. CARPER. One change made by the conference committee was to 
restate the preemption standard in a slightly different way, but my 
reading of the language indicates that the conference report still 
maintains the Barnett standard for determining when a State law is 
preempted.
  Mr. DODD. The Senator is correct. That is why the conference report 
specifically cites the Barnett Bank of Marion County, N.A. v. Nelson, 
Florida

[[Page 13168]]

Insurance Commissioner, 517 U.S. 25(1996) case. There should be no 
doubt that the legislation codifies the preemption standard stated by 
the U.S. Supreme Court in that case.
  Mr. CARPER. I again thank the Senator. This will provide certainty to 
everyone--those who offer consumers financial products and to consumer 
themselves.


                      NONBANK FINANCIAL COMPANIES

  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 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 
provision?
  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 
Reserve.


                          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 
clarification.


                      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

[[Page 13169]]

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 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.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                                  U.S. Senate,

                                    Washington, DC, June 30, 2010.
     Hon. Chairman Barney Frank,
     Financial Services Committee, House of Representatives, 
         Rayburn House Office Building, Washington, DC.
     Hon. Chairman Collin Peterson,
     Committee on Agriculture, House of Representatives, Longworth 
         House Office Building, Washington, DC.
       Dear Chairmen Frank and Peterson: Whether swaps are used by 
     an airline hedging its fuel costs or a global manufacturing 
     company hedging interest rate risk, derivatives are an 
     important tool businesses use to manage costs and market 
     volatility. This legislation will preserve that tool. 
     Regulators, namely the Commodity Futures Trading Commission 
     (CFTC), the Securities and Exchange Commission (SEC), and the 
     prudential regulators, must not make hedging so costly it 
     becomes prohibitively expensive for end users to manage their 
     risk. This letter seeks to provide some additional background 
     on legislative intent on some, but not all, of the various 
     sections of Title VII of H.R. 4173, the Dodd-Frank Act.
       The legislation does not authorize the regulators to impose 
     margin on end users, those exempt entities that use swaps to 
     hedge or mitigate commercial risk. If regulators raise the 
     costs of end user transactions, they may create more risk. It 
     is imperative that the regulators do not unnecessarily divert 
     working capital from our economy into margin accounts, in a 
     way that would discourage hedging by end users or impair 
     economic growth.
       Again, Congress clearly stated in this bill that the margin 
     and capital requirements are not to be imposed on end users, 
     nor can the regulators require clearing for end user trades. 
     Regulators are charged with establishing rules for the 
     capital requirements, as well as the margin requirements for 
     all uncleared trades, but rules may not be set in a way that 
     requires the imposition of margin requirements on the end 
     user side of a lawful transaction. In cases where a Swap 
     Dealer enters into an uncleared swap with an end user, margin 
     on the dealer side of the transaction should reflect the 
     counterparty risk of the transaction. Congress strongly 
     encourages regulators to establish margin requirements for 
     such swaps or security-based swaps in a manner that is 
     consistent with the Congressional intent to protect end users 
     from burdensome costs.
       In harmonizing the different approaches taken by the House 
     and Senate in their respective derivatives titles, a number 
     of provisions were deleted by the Conference Committee to 
     avoid redundancy and to streamline the regulatory framework. 
     However, a consistent Congressional directive throughout all 
     drafts of this legislation, and in Congressional debate, has 
     been to protect end users from burdensome costs associated 
     with margin requirements and mandatory clearing. Accordingly, 
     changes made in Conference to the section of the bill 
     regulating capital and margin requirements for Swap Dealers 
     and Major Swap Participants should not be construed as 
     changing this important Congressional interest in protecting 
     end users. In fact, the House offer amending the capital and 
     margin provisions of Sections 731 and 764 expressly stated 
     that the strike to the base text was made ``to eliminate 
     redundancy.'' Capital and margin standards should be set to 
     mitigate risk in our financial system, not punish those who 
     are trying to hedge their own commercial risk.
       Congress recognized that the individualized credit 
     arrangements worked out between counterparties in a bilateral 
     transaction can be important components of business risk 
     management. That is why Congress specifically mandates that 
     regulators permit the use of non-cash collateral for 
     counterparty arrangements with Swap Dealers and Major Swap 
     Participants to permit flexibility. Mitigating risk is one of 
     the most important reasons for passing this legislation.
       Congress determined that clearing is at the heart of 
     reform--bringing transactions and counterparties into a 
     robust, conservative and transparent risk management 
     framework. Congress also acknowledged that clearing may not 
     be suitable for every transaction or every counterparty. End 
     users who hedge their risks may find it challenging to use a 
     standard derivative contracts to exactly match up their risks 
     with counterparties willing to purchase their specific 
     exposures. Standardized derivative contracts may not be 
     suitable for every transaction. Congress recognized that 
     imposing the clearing and exchange trading requirement on 
     commercial end-users could raise transaction costs where 
     there is a substantial public interest in keeping such costs 
     low (i.e., to provide consumers with stable, low prices, 
     promote investment, and create jobs.)

[[Page 13170]]

       Congress recognized this concern and created a robust end 
     user clearing exemption for those entities that are using the 
     swaps market to hedge or mitigate commercial risk. These 
     entities could be anything ranging from car companies to 
     airlines or energy companies who produce and distribute power 
     to farm machinery manufacturers. They also include captive 
     finance affiliates, finance arms that are hedging in support 
     of manufacturing or other commercial companies. The end user 
     exemption also may apply to our smaller financial entities--
     credit unions, community banks, and farm credit institutions. 
     These entities did not get us into this crisis and should not 
     be punished for Wall Street's excesses. They help to finance 
     jobs and provide lending for communities all across this 
     nation. That is why Congress provided regulators the 
     authority to exempt these institutions.
       This is also why we narrowed the scope of the Swap Dealer 
     and Major Swap Participant definitions. We should not 
     inadvertently pull in entities that are appropriately 
     managing their risk. In implementing the Swap Dealer and 
     Major Swap Participant provisions, Congress expects the 
     regulators to maintain through rulemaking that the definition 
     of Major Swap Participant does not capture companies simply 
     because they use swaps to hedge risk in their ordinary course 
     of business. Congress does not intend to regulate end-users 
     as Major Swap Participants or Swap Dealers just because they 
     use swaps to hedge or manage the commercial risks associated 
     with their business. For example, the Major Swap Participant 
     and Swap Dealer definitions are not intended to include an 
     electric or gas utility that purchases commodities that are 
     used either as a source of fuel to produce electricity or to 
     supply gas to retail customers and that uses swaps to hedge 
     or manage the commercial risks associated with its business. 
     Congress incorporated a de minimis exception to the Swap 
     Dealer definition to ensure that smaller institutions that 
     are responsibly managing their commercial risk are not 
     inadvertently pulled into additional regulation.
       Just as Congress has heard the end user community, 
     regulators must carefully take into consideration the impact 
     of regulation and capital and margin on these entities.
       It is also imperative that regulators do not assume that 
     all over-the-counter transactions share the same risk 
     profile. While uncleared swaps should be looked at closely, 
     regulators must carefully analyze the risk associated with 
     cleared and uncleared swaps and apply that analysis when 
     setting capital standards for Swap Dealers and Major Swap 
     Participants. As regulators set capital and margin standards 
     on Swap Dealers or Major Swap Participants, they must set the 
     appropriate standards relative to the risks associated with 
     trading. Regulators must carefully consider the potential 
     burdens that Swap Dealers and Major Swap Participants may 
     impose on end user counterparties--especially if those 
     requirements will discourage the use of swaps by end users or 
     harm economic growth. Regulators should seek to impose 
     margins to the extent they are necessary to ensure the safety 
     and soundness of the Swap Dealers and Major Swap 
     Participants.
       Congress determined that end users must be empowered in 
     their counterparty relationships, especially relationships 
     with swap dealers. This is why Congress explicitly gave to 
     end users the option to clear swaps contracts, the option to 
     choose their clearinghouse or clearing agency, and the option 
     to segregate margin with an independent 3rd party custodian.
       In implementing the derivatives title, Congress encourages 
     the CFTC to clarify through rulemaking that the exclusion 
     from the definition of swap for ``any sale of a nonfinancial 
     commodity or security for deferred shipment or delivery, so 
     long as the transaction is intended to be physically 
     settled'' is intended to be consistent with the forward 
     contract exclusion that is currently in the Commodity 
     Exchange Act and the CFTC's established policy and orders on 
     this subject, including situations where commercial parties 
     agree to ``book-out'' their physical delivery obligations 
     under a forward contract.
       Congress recognized that the capital and margin 
     requirements in this bill could have an impact on swaps 
     contracts currently in existence. For this reason, we 
     provided legal certainty to those contracts currently in 
     existence, providing that no contract could be terminated, 
     renegotiated, modified, amended, or supplemented (unless 
     otherwise specified in the contract) based on the 
     implementation of any requirement in this Act, including 
     requirements on Swap Dealers and Major Swap Participants. It 
     is imperative that we provide certainty to these existing 
     contracts for the sake of our economy and financial system.
       Regulators must carefully follow Congressional intent in 
     implementing this bill. While Congress may not have the 
     expertise to set specific standards, we have laid out our 
     criteria and guidelines for implementing reform. It is 
     imperative that these standards are not punitive to the end 
     users, that we encourage the management of commercial risk, 
     and that we build a strong but responsive framework for 
     regulating the derivatives market.
           Sincerely,
     Chairman Christopher Dodd,
       Senate Committee on Banking, Housing, and Urban Affairs, 
     U.S. Senate.
     Chairman Blanche Lincoln,
       Senate Committee on Agriculture, Nutrition, and Forestry, 
     U.S. Senate.

                           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

[[Page 13171]]

Senator work with me to make this point in a technical corrections 
bill.
  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 
bill.


                              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.
  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.

[[Page 13172]]

  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. 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 
world.
  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 
beneficiaries.


                              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 
language.

[[Page 13173]]




                            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 
interest.
  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 
public 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 
security?
  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 
colloquy.
  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 
level?
  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

[[Page 13174]]

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 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 
Mac's.
  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

[[Page 13175]]

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 
months.
  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 
serve.
  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 
access 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 
facilities.
  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 
problematic.''
  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 
payments.
  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 
closed.
  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.

[[Page 13176]]

  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 
     diminishing.
       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- 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 institutions.
  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 
jobs.
  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

[[Page 13177]]

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 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 
meltdown.
  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

[[Page 13178]]

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 
dealers.
  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 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 
agency.
  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.

[[Page 13179]]

  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 
economy.
  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 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

[[Page 13180]]

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 
consumers.
  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 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 
agencies.
  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 
fees.
  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

[[Page 13181]]

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 
counterparties.
  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 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

[[Page 13182]]

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 
disruptions.
  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 
taxpayers.
  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 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 program.
  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 
offerings.
  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

[[Page 13183]]

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 
policy.
  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 
productivity.
  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.
  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.

                               Exhibit 1

                                                         AARP,

                                     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

[[Page 13184]]

     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 
     amendment.
           Sincerely,
                                                     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 
     industry.
       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.
       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.
           Sincerely,

                                        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 
     following:
       The two year rulemaking provision would mean that it could 
     be three years before the

[[Page 13185]]

     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 promulgated.
       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 
     protections.
       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.
           Sincerely,

                                        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 
     industry.
       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,
       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:

[[Page 13186]]

       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 
     America.
     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 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 objectives.
  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.

[[Page 13187]]

  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 
     responsibilities.
       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 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

[[Page 13188]]

     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 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 possible.
       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

[[Page 13189]]

     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 market.
       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 
     activities.
       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 the Conference 
     Report includes these new provisions which were in the bill 
     passed out of the Senate Agriculture Committee.
       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

[[Page 13190]]

     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 
     implement this statutory disqualification provision, the CFTC 
     may require such associated persons

[[Page 13191]]

     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

[[Page 13192]]

     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 
     preserves 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 
     added)).

  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

[[Page 13193]]

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 
to 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.

[[Page 13194]]

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 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.

[[Page 13195]]

  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 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 billion.
  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 
sooner.

[[Page 13196]]

  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 
report.
  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, 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

[[Page 13197]]

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 
resignation.
  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 
require 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 
products.
  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 
expired.
  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

[[Page 13198]]

light, Zoom Credit will preapprove you for a car loan, a home loan, a 
credit card, even if your credit is in the tank.
  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. 
Unbelievable.
  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 Capital 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 
essential.
  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 
together.
  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 
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 
yes.
  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 
night.
  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 
products.

[[Page 13199]]

  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 
well.
  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 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 bill.
  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 
ways.
  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 
minutes.
  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

[[Page 13200]]

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 
correct?
  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?
  The PRESIDING OFFICER. They have.
  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.]

                                YEAS--60

     Akaka
     Baucus
     Bayh
     Begich
     Bennet
     Bingaman
     Boxer
     Brown (MA)
     Brown (OH)
     Burris
     Cantwell
     Cardin
     Carper
     Casey
     Collins
     Conrad
     Dodd
     Dorgan
     Durbin
     Feinstein
     Franken
     Gillibrand
     Hagan
     Harkin
     Inouye
     Johnson
     Kaufman
     Kerry
     Klobuchar
     Kohl
     Landrieu
     Lautenberg
     Leahy
     Levin
     Lieberman
     Lincoln
     McCaskill
     Menendez
     Merkley
     Mikulski
     Murray
     Nelson (NE)
     Nelson (FL)
     Pryor
     Reed
     Reid
     Rockefeller
     Sanders
     Schumer
     Shaheen
     Snowe
     Specter
     Stabenow
     Tester
     Udall (CO)
     Udall (NM)
     Warner
     Webb
     Whitehouse
     Wyden

                                NAYS--39

     Alexander
     Barrasso
     Bennett
     Bond
     Brownback
     Bunning
     Burr
     Chambliss
     Coburn
     Cochran
     Corker
     Cornyn
     Crapo
     DeMint
     Ensign
     Enzi
     Feingold
     Graham
     Grassley
     Gregg
     Hatch
     Hutchison
     Inhofe
     Isakson
     Johanns
     Kyl
     LeMieux
     Lugar
     McCain
     McConnell
     Murkowski
     Risch
     Roberts
     Sessions
     Shelby
     Thune
     Vitter
     Voinovich
     Wicker
  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 
report.
  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.]

                                YEAS--60

     Akaka
     Baucus
     Bayh
     Begich
     Bennet
     Bingaman
     Boxer
     Brown (MA)
     Brown (OH)
     Burris
     Cantwell
     Cardin
     Carper
     Casey
     Collins
     Conrad
     Dodd
     Dorgan
     Durbin
     Feinstein
     Franken
     Gillibrand
     Hagan
     Harkin
     Inouye
     Johnson
     Kaufman
     Kerry
     Klobuchar
     Kohl
     Landrieu
     Lautenberg
     Leahy
     Levin
     Lieberman
     Lincoln
     McCaskill
     Menendez
     Merkley
     Mikulski
     Murray
     Nelson (NE)
     Nelson (FL)
     Pryor
     Reed
     Reid
     Rockefeller
     Sanders
     Schumer
     Shaheen
     Snowe
     Specter
     Stabenow
     Tester
     Udall (CO)
     Udall (NM)
     Warner
     Webb
     Whitehouse
     Wyden

                                NAYS--39

     Alexander
     Barrasso
     Bennett
     Bond
     Brownback
     Bunning
     Burr
     Chambliss
     Coburn
     Cochran
     Corker
     Cornyn
     Crapo
     DeMint
     Ensign
     Enzi
     Feingold
     Graham
     Grassley
     Gregg
     Hatch
     Hutchison
     Inhofe
     Isakson
     Johanns
     Kyl
     LeMieux
     Lugar
     McCain
     McConnell
     Murkowski
     Risch
     Roberts
     Sessions
     Shelby
     Thune
     Vitter
     Voinovich
     Wicker
  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.

                          ____________________