Patrick McHenryChairman

Washington, March 15, 2016 -

WASHINGTON - Financial Services Committee Chairman Jeb Hensarling (R-TX) will deliver the following remarks at the American Bankers Association Summit this morning. The remarks are embargoed until delivery, approximately 10:25 A.M.:
 
I appreciate that welcome.  I really do.  Don’t take this the wrong way but I’m sorry to see you.  That’s right. I’m sorry to see you. Because I know you should be back home with your loved ones, back home doing your job – an important job that helps build up your communities and breathes life into the American Dream for others.  Unfortunately, Dodd-Frank, Basel 3 and the CFPB take you away from your jobs. They force you to come here and fight for the livelihoods and economic liberties of your neighbors.

So I thank you for being here and I thank you for what you do.  As bankers, you help fuel the entrepreneurship and power the ideas and innovations that make our country stronger and our lives better.  When you work hard and play by the rules, you should never, never, never be vilified, castigated, micromanaged or shook down by your government.  Never.

Now while you’re here exercising your Constitutional right to petition your government for the redress of grievances, please deliver this urgent message.  Tell the Washington elites you meet that if we are to build the strong and secure America we all want then we must re-invigorate free enterprise, not attack it. 

We must remember that free enterprise – not government – has made America the fairest, most prosperous, most creative, most generous society the world has ever known! No other economic system allows people to earn their success.  No other system generates greater shared prosperity.  Only free enterprise is moral.  Only free enterprise is based on merit.  Only free enterprise empowers the poor, the unemployed and the under-employed.  Only free enterprise can lift them from poverty to prosperity. 

But don’t take it just from me.  Listen to that world famous economist Bono, who said:  “In dealing with poverty here and around the world, welfare and foreign aid are a Band-Aid.  Free enterprise is a cure.”

Not a fan of the band U-2? Then how about Kanye West, who recently reminded us:  “The only true freedom is economic freedom.”

I’m a fan of U-2.  My teenage daughter is a fan of Kanye West.  So I mention them both.

Seriously, if rock stars and rappers get it, why can’t Washington elites?

You can’t have the benefits of capitalism without capital.  It is that simple.  And last I looked, you -- the bankers of America -- are in the capital business.

Here is the truth:  We have got to stop putting our faith in more government and instead restore our faith in the greatest resource this nation has – and that’s the innovative spirit of a free people! 

Sluggish growth, falling wages, taxpayer-funded bailouts, and fewer opportunities to get ahead are not the by-products of free enterprise.  They are, as Ronald Reagan told us, “the residue of centralized bureaucracy” when, instead of government of, by, and for the people, we get “government by a self-appointed elite.”

When small town community bankers come up and tell me that they spend more time dealing with government red tape than serving their customers, you know something is seriously wrong in America today.

When a small business owner comes up and tells me he threw in the towel because his government just didn’t want him to succeed, you know something is seriously wrong in America today.

Washington’s regulatory waterboarding is drowning community banks and small businesses and sinking the hopes and dreams of millions of low and middle income Americans.  I need not tell you we are losing, on average, one community financial institution every day in America. 

And they are not perishing of natural causes.  The sheer weight, cost, complexity and uncertainty of federal regulation is killing them off – and for the sake of hardworking Americans it’s just got to stop.

As everyone in this room knows all too well, most of this needless red tape comes from the Dodd-Frank Act.  So hear me well.  On behalf of every hardworking, struggling American – I will not rest until Dodd-Frank is ripped out by its roots and tossed on the trash-heap of history!

Rightfully, Dodd-Frank should be called the Obama Financial Control Law because that’s what it is.  It stands as a monument to the arrogance and hubris of man in that its answer to incomprehensible complexity and government control is yet more incomprehensible complexity and more government control. 

It is a modern day Tower of Babel.  2,300-plus pages.  400 new regulations spawning tens of thousands of more pages of red tape.  And its foundation rests on a myth:  that de-regulation caused the financial crisis. 

Contrary to that fable told by the Left, the root cause of the crisis was not de-regulation but dumb regulation.  The number of regulatory restrictions on the financial sector increased in the decade leading up to the crisis. 

It did not decrease.  Many of them were regulations and statutes that either incented or mandated financial institutions to loan money to people to buy homes they ultimately could not afford to keep.  Think Fannie and Freddie.

Add to this the Federal Reserve’s monetary policy that held interest rates too low for too long and you got a housing bubble that inevitably burst.

When they voted for it, supporters of the Obama Financial Control Law told us it would “promote financial stability,” “end too big to fail” and “lift the economy.”   Since we’re near the start of baseball season, for you fans out there that’s strike 1, strike 2 and strike 3.  You’re out! None of this has come to pass.

More than 5½ years after it became law, the evidence continues to mount that our society is now less stable, less prosperous and – perhaps most ominously – less free.

Today the big banks are bigger and the small banks are fewer. In other words, even more banking assets are now concentrated in the so-called “Too Big to Fail” firms.  Pray tell, how does this promote financial stability?

But since Washington can control a handful of big established firms much easier than many small and zealous competitors, this is likely the drafters’ intended consequence of the Obama Financial Control Law. 

It codified into law “Too Big to Fail” and taxpayer-funded bailouts.  Title One, as you probably already know, dangerously allows the federal government to designate Too Big to Fail firms – also known as SIFIs.  In turn, Title Two creates a taxpayer-funded bailout system – the so-called “Orderly Liquidation Authority” – that the nonpartisan CBO estimates will cost taxpayers billions.

This is bad policy and worse economics.  It erodes market discipline and risks further bailouts.  It becomes a self-fulfilling prophecy, helping make firms bigger and riskier than they otherwise would be. 

According to the Richmond Federal Reserve, the explicit or implicit federal guarantees of financial sector liabilities have increased to a whopping 60 percent post- Dodd-Frank.

When private investors, depositors, and counterparties expect a bailout, their incentives to monitor risk clearly wane. Regulatory micromanagement is no substitute for market discipline. By this measure, the Obama Financial Control Law has clearly made our financial system riskier, and I haven’t even mentioned the turmoil in the corporate bond markets.

And instead of lifting our economy, the Obama Financial Control law has made us less prosperous.  Under the Obama economic strategy of which this onerous law is a central pillar, we’re suffering through the slowest, weakest, most disappointing, most anemic and absolute worst recovery on record.  Given how far the economy fell when the real estate bubble burst, history shows we should have had faster growth than normal during a rapid rebound phase.  It didn’t happen.  Instead, there hasn’t been a single year when economic growth has reached even three percent.  One published report on this failure noted, “there is no parallel for this since the end of World War II, maybe not since the beginning of the Republic.”

Last quarter’s GDP growth of one percent just punctuates the matter for working families who find themselves working harder for less.  They have seen their paychecks shrink by more than $1,600.  No wonder 72 percent of Americans believe the country is still in a recession.  That’s the reality they’re living every day.  For them, the recession never ended.

But I don’t need polls telling me that the economy is still not working for millions of working families.  Virtually every day I receive poignant letters and emails like these:

Carla from Mesquite, Texas writes:  “We are struggling to make ends meet.  My husband had temporary work for three months the last two years.  He has been looking for work…and not finding any.”

Michael from the town of Forney, Texas writes:  “I hear on the news how the economy is improving and I see Wall Street making money.  Average folks like me are not seeing any economic improvement.”

And Billy from the city of Garland tells me: “We are small business owners and we did employ our son.  We had to let him go, we could no longer pay him.”

Just heartbreaking.  The painful truth is the Washington hyper-controlled economy is failing low and moderate income Americans who simply want their fair shot at economic opportunity and financial security.

And they’re certainly not helped when Obama’s Financial Control Law has killed off a benefit many, if not most, consumers once took for granted:  free checking.  Before it became law, 75 percent of banks offered free checking.  Just two years later, only 39 percent did so. 

Furthermore, as account fees rise due to Obama’s Financial Control Law, so do the number of low and moderate income households who are unbanked or underbanked – a number that stands at more than 34 million, according to the FDIC.

Only someone from Washington would dare call this “consumer protection.”

When it comes to the Orwellian-named Consumer Financial Protection Bureau, the Federal Reserve reports that – when fully implemented – one-third of black and Hispanic borrowers will be denied home ownership opportunities by the CFPB’s Qualified Mortgage rule.

Regrettably, it looks like the consumer protection agency is going to “protect” millions of Americans right out of owning a home.

If there were any justice in the world, consumers would be able to sue the CFPB for unfair, deceptive and abusive practices – early and often!

I’ve mentioned just a few ways the Obama Financial Control Law has made our nation less financially stable and less prosperous.  But perhaps most ominously, it has also made us less free.   We are losing not only our economic freedom but our constitutionally guaranteed political freedoms as well.

As a member of Congress, there is no job more important and none that I take more seriously than upholding the Constitution.

Yet I do not recall ever in my lifetime a moment when the Constitution was under greater assault than today. 

The sheer genius of our Constitution – its framework of checks and balances, limited government, and co-equal branches of government – secured our fundamental rights and gave rise to the greatest republic the world has ever known.

But instead of a limited federal government operating from a clearly defined enumeration of powers, today we have a leviathan – $19 trillion in debt and dominating virtually every area of our lives at home and at work.  

Instead of checks and balances, we have President Obama’s pen and phone.

Instead of three co-equal branches of government, we have seen the rise of an unaccountable fourth branch.

Much of this has happened under the authority of those who call themselves “progressive.”

But as my good friend, Speaker Paul Ryan, has said:  “The ironic thing about ‘progressivism’ is that it’s terribly old-fashioned.”

For progressives believe only a certain class of people – a class to which they, of course, belong – has the authority and the responsibility to hold political power.  We must yield to their expert management for our own good because – as one architect of Obamacare cynically said – the rest of us are just too stupid to know what health care to choose.  So how could we possibly know what credit card or checking account is best for us or even what kind of mortgage we need?

Herbert Croly, a leading voice of the early Progressive movement, said as much when he stated the Progressive vision of government “legislates, but without  being…a legislature.  It administers, but without being…an executive.  It adjudicates, but without any power of attaching final construction to the law.  It is simply a convenient means of consolidating the divided activities of the government for certain practical social purposes.”

James Madison, in Federalist 47, had a different take on this notion. He wrote, “The accumulation of all powers, legislative, executive, and judiciary, in the same hands…may justly be pronounced the very definition of tyranny.”

If that doesn’t sound like the very definition of the CFPB, then I don’t know what does.  It is a case study in the overreach and pathologies of the unaccountable administrative state run amok.  At almost every opportunity, the Bureau abuses and exceeds its statutory authority, which is already immense.  The Bureau operates with such secrecy, unaccountability and bureaucratic tyranny it would make a Soviet Commissar blush!

It intentionally or, at best, negligently makes bad policy.  It acts as judge, jury and executioner – all without accountability and due process.  This should alarm every American.  Because as we become less governed by the rule of law and more governed by the whims of Washington regulators -- fear, doubt, uncertainty and pessimism are sown. 

The Bureau typifies not only the shadow regulatory system but also the unfair Washington system that Americans have come to loathe:  powerful government administrators, arbitrary rules, and unchecked power to punish or reward.   

Ladies and gentlemen, the harmful consequences of the Obama Financial Control Law aren’t theoretical.  They are all too real.  They have made our economy less prosperous, our financial system less stable, and our fellow citizens less free. 

Its true cost cannot be measured in mere dollars and cents.  The true cost includes the small business not started, the innovative products not produced, the workers not hired, the homes not purchased, the dreams of financial independence and economic security unfulfilled.

But there’s good news:  It doesn’t have to be this way.  We can do better.  One of the many, many blessings of being an American is if we don’t like the direction the country is going, we can change it.  We can reclaim our economy.  We can reclaim our country.  We can put these years of disappointment and decline behind us.  We can restore our national prosperity.  We can replace the Washington top-down controlled society with a bottom-up “We the People” opportunity society.  I know we can.

By no means is this an easy task.  But as Teddy Roosevelt once said, we must “dare mighty things” because simply “knowing what’s right doesn’t mean much, unless you do what’s right.”

So you will see Republicans in the House – and more specifically those of us serving on the Financial Services Committee – do what’s right.  You’ll see us offer a bold alternative to the sclerotic status quo of our financial markets. 

I can report to you today that we are deep into our planning and you will soon see our bill.  For our sputtering economy and all those struggling in it, help is on the way.

Our approach will help build the healthy and secure financial system Americans deserve.  One that protects consumers by letting you serve their needs in competitive, transparent and innovative markets, vigorously policed for force and fraud.  One that ends taxpayer-funded bailouts and instead unleashes America’s entrepreneurial potential.  It will provide desperately needed regulatory relief and halt the unbridled growth of the unaccountable, arrogant bureaucracy that is dragging us towards the failed economy of a European-style social democracy.

Let me share with you a couple of its features.

Our better approach will demand accountability from both financial institutions and financial regulators.  We will toughen penalties for those who engage in wrongdoing and defraud consumers.

We will also hold Washington accountable.  One way we will do that is by making sure every financial regulation passes a rigorous cost-benefit test.  The Ranking Democrat on my committee has called cost-benefit tests “dangerous.”  But shouldn’t we know the impact a proposed regulation will have on our economy before it gets implemented? Only in Washington is this called “dangerous.”  In my hometown and yours, it’s called common sense.

The truth is, well-designed regulations that are actually beneficial to the public can easily pass the cost-benefit test.   It can be used to defend good regulations as well as oppose bad ones.

Tellingly, University of Chicago Professor Eric Posner has said:  “If a cost-benefit mandate had been in place before the financial crisis, banks would probably have been subject to higher capital requirements long ago, and that would have mitigated the crisis.”

And that leads me to another feature of the better approach we’ll soon be rolling out.

Prior to the financial crisis, there were very complex risk-based capital standards in place, principally designed by the Basel Committee in Switzerland more than 4,000 miles from America’s shores. 

And since the crisis, U.S. banks have raised more than $400 billion in new capital and regulators have required institutions to maintain higher capital buffers – again, under regulatory authority they already possessed prior to the crisis.  I for one believe this generally to be a good thing.  But capital standards that were already too complex have become even more complex and more controlling with Basel 3.  I do not believe this to be a good thing.

The bold and better alternative you will see from committee Republicans will provide vast regulatory relief for financial institutions in exchange for meeting high, but simple, capital requirements.  If financial institutions elect to hold strong Tier 1 capital, then they should gain relief from both Dodd-Frank and Basel’s burdensome regulations, neither of which were meant for community banks and shouldn’t apply to them to begin with.

To avail themselves of this approach, some banks will have to raise additional equity capital.  Many community banks will not.  Regardless, the option remains with the bank.  But if a bank chooses to have a fortress balance sheet that protects taxpayers and minimizes systemic risk, then bankers ought to be allowed to be bankers.  It’s that simple.

Another important feature of our plan will be Federal Reserve reform.  Separate and apart from monetary policy, the Fed – thanks to the Obama Financial Control Law – can now functionally control every major corner of the financial services sector of our economy.  And it can do so as part of a shadow regulatory system that is neither transparent nor accountable to the American people.  Not only does this harm economic growth, it is an affront to due process, checks and balances, and the rule of law.  The American people should be duly alarmed that they may wake up one day to discover our central bankers have become our central planners.

To protect the American people from Fed overreach, the better approach we’ll be offering includes reforms already passed by the House in the Fed Oversight Reform and Modernization Act – the FORM Act.  These reforms require the Fed to conduct cost-benefit tests for all regulations it promulgates.  In addition, our plan will provide for public notice and comment on the Fed’s stress-test scenarios and require the Fed to disclose a summary of the stress-test results if financial institutions have to resubmit them.

The greater the powers ceded to the Fed, the more its activities must be opened up to scrutiny and critical examination.  Our alternative will accomplish that.

Already the FORM Act’s monetary policy provisions have been endorsed by three Nobel laureates and numerous ex-Fed officials.

As I mentioned, these are just a few of the provisions that will make up our bold and better Republican alternative to the status quo.  Stay tuned for details about the rest of our plan as we get closer to bringing it up for debate.  We’re hopeful it will earn your support.

As we move forward, it’s important to remember that this is not going to be a debate between regulation and de-regulation.  No, this is going to be a debate over the future of our economy and the hopes and dreams of millions.  On one side will be those who passionately believe you improve the economy by taking more from the private sector and consumers and giving it to bureaucrats in Washington because they are smarter than you. 

And on the other side are those of us who just as passionately believe the true source of prosperity is not and never will be found in Washington.  We believe our true source of prosperity has and will always be freedom, free markets and free enterprise. 

We believe well-functioning, transparent and efficient capital markets provide a ladder of opportunity, and when all Americans have more opportunities, the economy rises with them.

It’s a clear choice between two different futures and two different visions of our economy.  We reject trickle-down government and instead celebrate the risk-taking entrepreneurial spirit that has made America the shining light, the envy of the world and the last best hope of mankind on this earth.

Ladies and gentlemen, this is a worthy fight – because it’s a fight for America’s future.  And I’m more confident than ever that – with your help – this is a fight freedom will win. Thank you.       

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