In advance of testimony by Chair Janet Yellen to discuss the Federal Reserve Board’s implementation of Dodd- Frank rules, Congresswoman Maxine Waters (D-CA), Ranking Member of the Committee on Financial Services, pointed out the importance of the Fed’s supervisory role in preventing large banks and firms like AIG from ever destabilizing the American financial system again.
The top Democrat praised the Fed’s efforts to stabilize the economy and implement broad reforms to the banking industry, and urged the Fed to utilize its authority to further tailor regulations for regional banks before Congress takes action to repeal important Dodd-Frank reforms that protect the economy from activities at the largest, riskiest banks.
Finally, Waters underscored the importance of remaining vigilant against efforts to ‘defund and defang’ Dodd-Frank, referencing legislation marked up this week in Committee that would significantly scale back the Fed’s supervisory role and ability to regulate the country’s largest banks and non-banks.
Full text of the remarks is below.
”Thank you, Mr. Chairman, for holding this hearing, and thanks to Federal Reserve Chair Yellen for making herself available to testify.
The 2008 financial crisis inflicted staggering damage to our economy, with, in the months before President Obama took office, employers shedding more than 800,000 jobs a month, unemployment topping 10 percent, home foreclosures displacing millions of families, and entire industries on the brink of collapse.
Congress responded to this devastation by passing the most comprehensive overhaul of our financial system since the Great Depression – the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The Act entrusted significant responsibility to the Federal Reserve, and directed the Fed to improve its supervisory program so that another crisis of such scope and depth would never happen again.
Recognizing that the Federal Reserve failed to apply appropriate prudential standards to large banks, Congress directed the Fed to impose enhanced requirements for capital, liquidity, resolution planning, and other factors, to ensure that no large bank, or group of banks, could again endanger our economy.
I am eager to hear from Chair Yellen on the progress of these reforms, along with a description of how the Fed is using the flexibility embedded in Dodd-Frank to tailor regulations appropriate to the sizes and risks of different types of banks. Congress specifically permitted the Fed to differentiate among companies on an individual basis or by category, considering their capital structure, riskiness, complexity, financial activities, size and any other factors. The Fed should use this authority.
Likewise, Dodd-Frank provided the Fed with new responsibility to collectively regulate the activities of systemically risky non-banks – entities such as the insurance company AIG, whose near-failure imposed dire, systemic consequences on our economy just seven years ago. I very much would like to hear from Chair Yellen about how the Fed has bolstered its expertise to take on these new responsibilities.
And let me also express my deep concern about legislation this Committee considered during a mark-up this week that would severely undermine efforts by the Fed to regulate both banks and non-banks. With regard to banks, the legislation would hamstring the Fed’s ability to regulate all but the largest globally active banks - ignoring how the failure of many large, interconnected, regional banks could have dire consequences for our economy. Similarly, other legislation would undermine the Financial Stability Oversight Council’s, or FSOC’s, ability to identify supervisory gaps, designate non-bank firms for enhanced prudential regulation, and ensure that the Fed is regulating them on a comprehensive, consolidated basis.
Finally, as we just have passed the five year anniversary of Dodd-Frank, I think it is important to remind the Committee and the public of the need to be ever-vigilant of the threat of another crisis. Among our supervisors, we must guard against complacency and regulatory capture. Among our law enforcement, we must hold both institutions and individuals accountable – something that former Chairman Ben Bernanke, in his recent book, said that we did not adequately do.
And here in Congress, we must be mindful of attempts to defund and defang Dodd-Frank. The American economy has made substantial progress since the depths of the crisis, but that progress will be threatened if we do not protect these reforms both in statute and in practice.