U.S. Senator Bob Corker, a member of the Senate Banking Committee, voted against the Dodd financial regulatory reform bill, S. 3217, late Thursday expressing disappointment that the bill is yet another overreach by the federal government and does not deal with some of the core issues that led to the 2008 financial crisis.
“I’m obviously disappointed,” said Senator Corker. “I’ve spent as much time as any senator on policy regarding our financial system and trying to make sure that we create stability for the future. I’m proud of the role I was able to play in this bill and feel like I’ve had some input in its shaping, but I really wish the policy was far different than it is.
"I think this bill had good things in it, but for the most part it is a vast overreach of the federal government. We could have made it better. We didn’t.
"It’s my hope that in conference many of the issues that are problematic will be unwound. I think over the course of the next decade we’re going to be unwinding much in this bill.
"To add insult to injury, this bill is not paid for and will add $10 billion in debt to our country. I think the process on the floor has been good, but I do wish that we had spent more time on some of the core issues that led to the financial crisis and on developing a bipartisan template. I think there were plenty of missed opportunities there.
"In spite of the outcome, I want to thank Banking Committee Chairman Chris Dodd, D-Conn., and the Ranking Member Richard Shelby, R-Ala., for their efforts in trying to create a piece of legislation for this body.”
Senator Corker joined the Banking Committee in January of 2008 and has drawn upon his experience as a businessman, as Tennessee’s commissioner of finance, and as mayor of Chattanooga to help the committee work through some of the major issues facing our country. In March of 2009, in anticipation of regulatory reform, Senator Corker joined with Senator Mark Warner, D-Va., to host a series of briefings for all senators, bringing in guest speakers from the fields of academia, government, finance and law to discuss various aspects of financial regulation. In November of 2009, at a committee mark-up of Chairman Dodd’s regulatory reform proposal, Senator Corker urged the chairman to put his bill aside and pursue bipartisan negotiations. Chairman Dodd agreed, and tasked bipartisan teams with four different aspects of regulatory reform. Senators Corker and Warner were assigned systemic risk and resolution authority.
In February, Senator Corker agreed to work with Chairman Dodd toward a bipartisan regulatory reform bill. In March, Chairman Dodd chose to introduce his own bill.
Statements from Senator Corker on specific aspects of the bill:
RESOLUTION AUTHORITY: “My focus, first and foremost, has been to ensure that when an institution fails, it goes out of business in an orderly way and taxpayers are not exposed to future bailouts. Senator Mark Warner, D-Va., and I worked on this aspect of the legislation for the past year. I’m not pleased with the final product. I felt strongly that there should be a presumption of bankruptcy for all failing companies but also recognized that our current bankruptcy system is not set up to deal with 21st century financial companies. Ideally the Judiciary Committee would have done the work necessary to improve our bankruptcy code so it was equipped to handle highly-complex companies, and we would have passed those bankruptcy code changes as part of this legislation. After our work with Senator Warner was complete, important judicial checks were removed. We appreciate all that Ranking Member Shelby was able to achieve on Title 2 but still believe there needed to be stronger judicial checks attached to resolution. I am also disappointed that we have not ended up with what I would call orderly liquidation. We now are giving the FDIC (Federal Deposit Insurance Corporation) five years to resolve a firm. I don’t think many Americans would view the government taking over an entity and running it for five years as actually resolving it out of business.”
UNDERWRITING: “At the core of the financial crisis were home loans that should never have been written because the borrowers could not repay them. To correct this glaring vulnerability in our financial system, I proposed an amendment – that later failed – that would have directed federal banking regulators to establish minimum loan underwriting standards, setting an appropriate down payment and requiring verification of the borrower’s ability to pay for the life of the loan.”
CONSUMER PROTECTION: “When I look at the consumer protection title in the current bill, I’m reminded of one of the White House’s favorite adages: ‘Never let a good crisis go to waste.’ The consumer protection agency, as envisioned in the Dodd bill, is a tremendous overreach by the federal government. This agency has the ability to create and enforce any rule it wishes and permits state attorneys general to interpret and enforce those rules – as well as existing laws – against community banks and credit unions.
Federal Preemption: “Our current banking system reflects over 150 years of precedent that has helped foster the growth of our truly ‘national’ economy. No other system in the world matches our consumer convenience, efficiency, affordability and accessibility. This far-reaching, unfettered consumer protection agency overturns our banking system and allows for a wild, wild West of hyperactivity by state attorneys general, especially those that may have political and social justice agendas. We could have a bank that operates in 50 states that has 50 different sets of regulations it must comply with. It’s not the big banks I worry about; it’s the community banks and credit unions that simply cannot afford this additional burden and expense. This will also frustrate consumers who will be paying more for less as the cost of compliance is passed along to them and they become subject to confusing rules regarding their checking accounts and ATM usage.
Proxy Access: “A federal mandate is not the way to protect shareholders from management failure and excessive risk taking; it is yet another government intervention into America’s private sector. Federally mandated proxy access will likely lead to public companies wasting millions of dollars fending off the influence of special interests and activists who represent the narrow interests of very few and yet have the potential to redirect a board’s focus away from the long-term success of a company.”
FANNIE/FREDDIE: “I cosponsored an amendment by Senator John McCain, R-Ariz., to create some interim steps to improve the oversight, budgetary constraints and transparency of the GSEs, Fannie Mae and Freddie Mac, and their conservatorship. This amendment would have laid out a path toward determining the future of Fannie and Freddie. I believe this would have been a way of forcing Congress to address GSEs, by a date certain, without being overly prescriptive.”
DERIVATIVES: “We need a strong derivatives title that causes more trades to be cleared and increases transparency. Instead, the current bill would remove swap desks from commercial banks, lowering the amount of capital available for actual lending. That is exactly the wrong thing to be doing in this tough economy, and I was proud to support Senator Judd Gregg’s, R-N.H., effort to strike this damaging language from the Dodd bill.”
The following are remarks Corker delivered on the Senate floor on Thursday, May 20, prior to the cloture vote on the legislation.
Senator Corker Floor Remarks
Financial Regulatory Reform
May 20, 2010
Madam President, I want to talk for just a few minutes about the piece of legislation that’s pending. My guess is we'll have final passage after reaching cloture here a few minutes ago.
I’d like to go back and say that we began the process of looking at financial regulation after the crisis that occurred a couple years ago where institutions all across this country made loans, very poor loans, to people who used that money to buy homes. That was the genesis of this crisis, the fact that institutions across this country made those bad loans and made them to people who couldn’t pay them back. Certainly, that was exacerbated by the fact that with all the easy credit that occurred, there was a housing bubble that no doubt was going to put housing back into its normal state at some point, but the combination of those two factors created a tremendous crisis in our country.
When the banks that were involved in all of these loans got in trouble, there really wasn’t a good mechanism to deal with so many of them being troubled at the same time. And so we ended up with a moral hazard that this legislation is trying to deal with. Institutions had capital injected into them because many people at that time felt that the bankruptcy code or other mechanisms just weren’t prepared to deal with these institutions. And so a process began where we in this body and people on the other side of the Capitol tried to pass legislation to deal with this.
Madam President, I want to say that I know there’s been a good attempt to deal with it. I’ve been involved in some of those negotiations, and as you can tell by my vote, I’m disappointed with the outcome of that involvement. But still it’s been an issue that I believe is important to this country. I will say that in spite of my disappointment with the outcome, the process we’ve had here on the floor has been a good one. We had a lot of amendments that have been voted on, and I think that speaks well of this body.
But, Madam President, the one thing we didn’t deal with in this 1,400-page bill that I’m sure will be lengthened by the managers’ amendments and other types of things, is that this bill absolutely does not address loan underwriting. I offered an amendment to try to deal with that, where Americans would at least, when they applied for a loan, there had to be a verification of their income. And people would look at their debt-to-equity ratios or see if they had the ability to pay back everything before they were able to take out a home mortgage and the fact that they would have a 5% down payment. I think all of us know that in other countries -- Canada just to the north of us didn’t have this crisis because most people there put 15% down on their home mortgages. But we didn’t want to deal with that. I think there’s no one in this body that would say the genesis of this crisis was not the fact that a lot of loans were written to people who couldn’t pay them back. And so we didn’t deal with that in this bill. And that to me is a major oversight and one of the reasons I’m disappointed in the outcome.
When we move on to deal with resolution, and I do think that by the way, much of that has been dealt with appropriately. And I appreciate the chairman [Banking Committee Chairman Chris Dodd, D-Conn.] allowing me to work on that title with the Senator from Virginia [Mark Warner, D-Va.] – allowing us to be engaged in a way that I think helped improve this bill in resolution. But one of the things that we didn’t deal with there is really strengthening our bankruptcy code. Resolution, as we all discussed over this last year, was to be the last resort. Orderly liquidation is what we’ve called it. And one of the things that we had hoped to do is work with the Judiciary Committee to actually strengthen our bankruptcy laws so that bankruptcy could work. We not only didn’t do that, we didn’t deal with some of the judicial checks that I thought were important. I am also disappointed that we have not ended up with what I would call orderly liquidation. We now are giving the FDIC [Federal Deposit Insurance Corporation] five years to resolve a firm. If a large firm fails, we have the possibility of the FDIC running a large financial holding company for five years. I just think that’s inappropriate. And I don’t think many Americans would view the government taking over an entity and running it for five years as actually resolving it out of business. So obviously, I’m disappointed with that but I do think that the chairman [Banking Committee Chairman Chris Dodd, D-Conn.] and others have tried to deal with resolution in a responsible manner. It just didn’t get where it needed to go.
On derivatives, I agree with the thrust of trying to make sure that on the derivatives activity that takes place in this country that major participants actually have to clear. I think the plumbing of ensuring that people are bad on that day is very appropriate. I’m very concerned, on the other hand, about end users being caught up in this legislation. I hope there are some clarifications that can occur before this bill actually becomes law. Here’s what’s happened. We have people on Wall Street obviously that deal with these on a daily basis. They need to obviously clear. We have, on the other hand, people all across this country that are part of our heartland that manufacture things, that process things, that use derivatives. For instance, if they’re trying make heavy equipment, they want to make sure that those metal prices don’t fluctuate in such a way that that they end up losing money. Or maybe they’re selling their goods to another company in another country and they want to make sure that they are being paid in U.S. dollars. So they might buy a currency swap. So the way this legislation is now crafted, there’s great question as to whether these people that are spread across this country in manufacturing and other kinds of jobs are going to be without capital. They’re going to have to unnecessarily tie capital, which takes away from their ability to create jobs. Then, for some reason, the Ag committee sent over something which basically moves the swap desk out of a commercial bank into an affiliate, which means that a whole new realm of capitalization has to take place, money that’s taken out of the markets right now at a time when we would hope these institutions would be creating loans. And so what happens, Madam President, when a company is trying to formulate capital, they go to an institution, a commercial bank, they may borrow or have a line of credit and make payroll. While they’re doing that, they also deal with these other activities. They deal with currency swaps. They deal with making sure that metal prices are hedged or other commodity prices. And so what this would do is alleviate the ability for an institution to use capital they already have to do that. I’m talking about the actual financial institution, but it also makes it far less convenient and far more difficult for those people across our country that create these great jobs from being able to do so. There’s absolutely no reason for it. And I think that people on both sides of the aisle understand that it is a problem. My sense is that the chairman [Banking Committee Chairman Chris Dodd, D-Conn.] possibly believes this to be a problem. And yet we still have not dealt with that issue. And if the bill passes in three or four hours, we end up doing something that accomplishes nothing as it relates to the financial stability in our country. Instead it creates a situation where there’s less capital available for lending, and it’s far more difficult for those institutions that are trying to formulate capital.
Madam President, the thing that is really difficult for me to understand is why we didn’t take the time to deal with Fannie and Freddie. I know that there are a lot of people in this body that have concerns. I think people on both sides of the aisle have concerns about these two GSEs [government sponsored enterprises] that we all know we have incredible liabilities against. We had a really thoughtful amendment, the McCain amendment. It didn’t proscribe what we did with Fannie and Freddie, but it made sure that we as a body dealt with them over the next couple years. I think we know they’ve been enablers. These two institutions, because of their mixed messages with two divergent missions, have created lots of problems for this country. They have enabled some really bad things to happen in this country as it relates to home mortgages. I also know they are a big part of the market, and we have to deal with them over time. And the McCain amendment gave us the ability to do that.
I know this body chose not just not to deal with underwriting, the core issue, chose not to deal with creating a bankruptcy code that would work in most cases, and I’m one of those that believes we ought to have some ability to resolve in the event there is a systemic risk, but we also didn’t deal with Fannie and Freddie.
The credit rating amendment that we added on, I think, is a good step in the right direction. I voted for it. But again, we didn’t take the time within our committee to really even understand what we ought to do in credit rating agencies. So we had an amendment that was drafted up a day before a vote, and we voted on it. It’s pretty draconian. But what it does mean, and I thank my friend from Florida for offering it, is that we actually will deal with credit rating agencies down the road.
Right as this bill was in committee, something was sort of airdropped out of the sky, and that was the Volcker language. Certainly Chairman Volcker, who used to be head of the Federal Reserve, somebody whom I respect, came up with some language out of the blue that is a part of this bill. We had one hearing on it, and the person who was the author of the Volcker language couldn’t even describe to us exactly what he meant when he said, ‘you know it when you see it.’ We may need to do something on Volcker. I would hope that we would have a neutral study first before we decide. But in essence, we now are sort of sending it off in a direction. I realize there is still a degree of study language, but we send it off in a direction when in fact prop-trading and private equity and hedge funds have absolutely nothing to do with this last crisis. Nothing. Zero. Not a single institution in this country was negatively affected by those activities, not one, as it relates to creating a systemic crisis, and yet, again, it’s a part of this bill. And I think that these types of things go under the adage that we’ve heard from the White House for the last year and a half, and that is: Never let a good crisis go to waste.
Another one – proxy access. I know the senator from New York [Senator Chuck Schumer, D-N.Y.] has been a proponent of proxy access. For those of you who are not paying much attention to this, what this means is if you own a very small portion of a publicly traded company, you have access to their proxy documents. And, therefore, you have the ability to call some people to be voted on for up to 25 percent of the board. And to me all this does is put board members of these companies in the same place that we in the Senate and those in the House are in, and that is – very subject to political whims. You can imagine a special interest group – whether it be labor or an environmentalist group – basically targeting a company in order to make a statement and basically taking those board members away from dealing with the long-term interests of the company. Proxy access has absolutely nothing – zero – to do with financial regulation. But this has become a Christmas tree for those kinds of things because people realize it’s something that’s going to pass.
But I think the best example that I can possibly imagine of using a crisis to create something through legislation that is, in my opinion, way overreaching, is this consumer protection agency. I really am still shocked at where we’ve gone with this. I agree with people in this body that mortgage brokers in many cases took advantage of people who were borrowing money. I agree with that. And I think that we ought to have regulation to deal with that. But instead of dealing surgically with that particular issue, which is something that was a part, a small part, but a part of this crisis, what we’ve done is create another czar, a czar that has no board. This czar is appointed for five years. It has absolutely no board, no governance. It has the ability to create rules with no real veto authority. Then it has the ability to enforce those rules. It has a very generous budget. I think one of the worst issues is that it has the ability to deal with underwriting loans. We have a consumer organization, not a banking regulator, but a consumer organization that’s going to be dealing with underwriting loans. I know, Madam President, this may sound a little far-fetched, but you can have the wrong person in this position – again, there’s no board, there’s really no check and balance – that you can imagine could use this organization to create social justice in the financial system. And on top of that, we’ve turned back from where we were in having a national banking system, and we are now allowing 50 state AGs [attorneys general] across this country … for the first time in a long, long time to have the ability to sue those firms over the rules that this consumer organization creates without any checks and balances from Congress, and certainly no real checks and balances, in my opinion, from the prudential regulators that oversee the safety and soundness of these institutions.
So, Madam President, I’m obviously disappointed. I’ve spent, I think, as much time as any senator on this floor – maybe slightly less than the chairman [Banking Committee Chairman Chris Dodd, D-Conn.] – on policy regarding our financial system and trying to make sure that we create stability for the future. I think this bill had good things in it; there’s no question. And I appreciate the thrust. But I think there’s a lot overreaching, and I think not enough time was spent on some of the core issues that I think are important. I think, to add insult to injury, Madam President, this bill’s not paid for. This bill’s going to add $17 billion to $23 billion in debt to our country. We haven’t even addressed that in this bill.
So, Madam President, I know there’s been some discussions of bipartisanship, and I do think that certainly the chairman [Banking Committee Chairman Chris Dodd, D-Conn.] put out some effort toward bipartisanship. I will say that, you know, it really has begun to feel that in many ways -- and not necessarily as it relates to this bill -- but bipartisanship means everybody on the other side of the aisle, with maybe one or two exceptions, being supportive of something, and a few people, less than a handful on our side of the aisle being supportive, and that being bipartisanship. I think that’s not the kind of bipartisanship that I thought we were all pushing for when this bill began. I think the process on the floor has been good. I do wish that we had spent more time developing a bipartisan template. I think there were plenty of missed opportunities there. I’m proud of the role I was able to play in this bill and feel like I’ve had some input in its shaping, but I really wish the policy was far different than it is. It’s my hope that in the next six months or so there will be a little different balance in this body where we take each other a little more seriously than we do now, and we actually end up with centrist policies that are middle-of-the-road policies.
But I’ll close, Madam President. I know the President [Obama] has to be very happy. It seems to me this bill, as it’s turned out, has turned out to be exactly, exactly the bill that he talked about some time ago. I know it has to be a major victory for him. In my opinion, it’s an overreach. I feel like we could have done better. I’m regretful of the fact that we did not do better in the process. But I do think some steps were made over the last month, in particular, that I hope will cause this body to function better. And with that, I yield the floor.
Obviously I don’t support this legislation and wish it could have been better and think we’ve had opportunities. We could have made it better. We didn’t. I think over the course of the next decade we’re going to be unwinding much that we’ve done here. It’s my hope that in conference many of the issues that are problematic will be unwound. I think there’s a desire to do that. I hope that’s the case. I came here to this body because I wanted to see good policies put in place for this country. I wanted to see us become a stronger country than we already were, the greatest nation on earth. I hope as this piece of legislation moves through to conference and comes back to this body that it is strengthened, and I did support amendments on this floor that made me feel better. I think improvements were made. I think we also stepped backwards in a number of cases.
With that, Madam President, I thank you for the time. And in spite of the outcome, I want to thank the chairman [Banking Committee Chairman Chris Dodd, D-Conn.] and the ranking member [Senator Richard Shelby, R-Ala.] for their efforts in trying to create a piece of legislation for this body. Thank you very much.